Lagos State Local Government Audit Manual

Audit Manual

For the Office of the

Auditor General

for Local Governments

Lagos State

Version 2.3 January 2013

Lagos State Local Government – Audit Manual Version 2.3 January 2013

Preface

This Audit Manual was first produced for the Office of The Auditor-General for Local

Governments in Lagos State in November 2005. It was subsequently fully revised in January,

2013. The intentions of the manual are three-fold. Firstly to ensure that audits are performed

in line with audit standards and best practices; secondly to ensure compliance with the Model

Financial Memoranda for Local Government and other statutory regulations as may be revised

from time to time; and thirdly to reflect the good practices which have been developed in my

office.

This Audit Manual is designed to enhance and standardise audit practice within the Lagos

State Office of the Auditor-General for Local Governments by promoting the sharing of

knowledge and good practice. This should encourage standard uniform practice expected to

facilitate peer review and self-evaluation by the Audit teams. This in turn will lead to improved

performance which is expected to assure quality service delivery to Local Governments in

Lagos State.


Foreword

The mandate of the Auditor-General for Local Governments, in broad terms, is to examine

how well the Local Governments have managed their financial affairs and to report the results

of these examinations to the State House of Assembly through the Public Accounts

Committee (Local).

The Audit Manual sets out the principles and audit procedures which are to be followed by

every audit team member when auditing or undertaking audit related assignments in Local

Governments, Local Government Education Authorities and allied agencies or when called

upon to carry out investigations into matters that may have come before the State Assembly

or indeed the Office of the Auditor-General for Local Governments (OAGLGs).

The manual sets out the high standards of professional services which the Auditor General for

Local Governments expects of his staff and reflects current International Standards on

Auditing and I trust that the manual will add value to the work undertaken by all audit teams. It

is a reform strategy brought about by the need to enhance service delivery and productivity of

this office. As a symbol of "Public Trust and Accountability", this manual will aid compliance

with International Standards and align us with the aspirations of Lagos State Government in

achieving timeliness, adequacy and effectiveness in financial reporting.

The Manual is expected to be a reference point for the continuous improvement of our audit

practice. As our knowledge of and experience with auditing continues to expand and evolve,

so will this Manual. The Manual has been prepared for use in guiding our audit programme

and tasks. We recognise that some changes to this document may be necessary in future in

order to ensure that the Manual is kept up to date and current. Therefore, this manual, in its

entirety, will be subject to review from time to time in order to:

Keep up with new developments in audit practice,

Effect legislative changes as they affect the objectives of the Office of the Auditor General for Local Governments from time to time and

Keep up with the challenges of our assignments.

Audit Teams should be proud of this Revised Audit manual and as such are expected to be in

full compliance with its contents on an ongoing basis. All new staff members are required to

read for retention, the contents of this Manual.

Comments or suggestions for improving the Manual are welcome and such should be

addressed to the Auditor-General for Local Governments, Lagos State.

I wish to express my profound gratitude to the Growth and Employment in States (GEMS3)

project funded by the Department for International Development (DFID) of United Kingdom

who engaged Andy Wynne and F.O. Lasisi to work with my staff to review and revise the

Manual in line with INTOSAI international auditing standards and current good practices in my


office. My sincere appreciation also goes to the Lagos State Government that has provided us

with opportunities for capacity building enhancement of the performance of our duties. To the

members of staff of this office, I say a special thank you to all for the support and dedication

with which everyone has undertaken their tasks.

M. M. Hassan

Permanent Secretary/Auditor-General for Local Governments,

Block 2,

Old Secretariat,

Ikeja, Lagos State.

www.lagoslocalaudit.org

[email protected]

January, 2013

http://www.lagoslocalaudit.org/

mailto:[email protected]


How to Use The Manual

This manual has been designed and presented in loose report format for ease of updating.

Whenever a review of the manual is undertaken, it will only be necessary to reprint the pages

of the manual that are affected by the exercise.

The page numbers at the bottom of the pages are for the purpose of filing updated pages or

pages affected by such update. With time it may become necessary to put gaps in the page

numbering. These are necessary in loose leaf reporting. Where such a gap occurs, there

should be a note under the page number preceding the gap on what the next page number

should be.

Updated Pages

Updates come in loose leaf and with them should come filing instructions explaining which

pages to remove and which new pages to insert. To keep your manual up to date, updates

should be filed as soon as possible after the receipt of the new pages. This may be done

collectively within an audit team. The filing instruction should carry date of the update to

provide a check on how current a manual is.

To misfile new pages of updates is to render your manual inadequate. Once the new pages

have been inserted, the filing instruction itself should be filed in the section marked "Last

Update Filing Instructions"

Pages being updated should carry the date of update next to the page number at the bottom

of the page in small italics numbering.


List of Abbreviations Used in this Manual

AFROSAI-E African Organisation of Supreme Audit Institutions (English)

AGLG Auditor-General for Local Governments

ANAN Association of National Accountants of Nigeria

APS Audit Planning Sheet

CAF Current Audit File

CPE Continuing Professional Education

CT Council Treasurer

EFCC Economic and Financial Crimes Commission

ExCo Executive Committee

ICAN Institute of Chartered Accountants of Nigeria

ICPC Independent Corrupt Practices Commission

INTOSAI International Organisation of Supreme Audit Institutions

ISA International Standards on Auditing

ISSAI International Standards of Supreme Audit Institutions

LGA Local Government Authority, which should be read to include Allied

Agencies (Local Government Education Authority and Pensions Board)

LGs Local Governments, which should be read to include Allied Agencies (Local

Government Education Authority and Pensions Board)

OAGLG Office of the Auditor-General for Local Governments

PAC Public Accounts Committee

PAF Permanent Audit File

SAI Supreme Audit Institutions

SUBEB State Universal Basic Education Board

VFM Value for Money


OFFICE OF THE AUDITOR-GENERAL FOR

LOCAL GOVERNMENTS, LAGOS STATE

AUDIT MANUAL

Contents

Chapter 1: Introduction

Part One – Regulatory Audit

Chapter 2: Audit Planning

Chapter 3: Evaluating and Testing Internal Controls

Chapter 4: Performing Audits

Chapter 5: Working Papers and Audit Evidence

Chapter 6: Audit Report and Materiality

Part Two – Other Audit Methodologies

Chapter 7: Audit of Financial Statements

Chapter 8: Capital projects Inspection Exercise

Chapter 9: Staff Verification /Revalidation Exercise

Chapter 10: Preventing, Detecting and Reporting Fraud and Illegal Acts

Chapter 11: Special Audit and Investigation

Chapter 12: Co-ordinating Audit Activities

Chapter 13: Professional Proficiency

Chapter 14: Standards and Guidelines for Auditing

Lagos State Local Government – Audit Manual Version 2.2 December 2012

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CHAPTER 1

INTRODUCTION

1.1 Introduction This manual is a revision and modernization of the first ever Local Government Audit Manual for the Office of the Auditor General for Local Governments which was developed in 2005. The revision of the 2005 Audit Manual was necessitated by the need to reflect changes in good practice in the execution of local government audits. This manual is prepared for the use of the staff of the Office of the Auditor General for Local Governments to explain the processes and procedures necessary to carry out auditing in an orderly and efficient manner. The purpose of the Manual is to offer practical guidance to local government auditors. The manual is designed to meet the requirements of all Auditors in the Office of the Auditor General for Local Governments. Every audit needs to comply with the requirements of legislation, professional standards and best practice. This Manual sets out policies and practices that should be applied to meet these requirements. Although approach should always be tailored to meet the individual circumstances of each audit, the framework will normally be the same on every audit. The key international professional standards for public sector audit are the INTOSAI Standards. A summary and introduction to these standards is provided at Annex A to this Chapter and at the beginning of each of the main chapters of this manual. Annex B to this Chapter provides a summary of the main aspects of good practice for the audit of local governments in Nigeria. The manual will need to be continually updated to reflect changes in approach and refinements to the audit methodologies adopted or to reflect changes in the regulatory environment, for example, the format of the annual financial statements. In addition, additional sections may need to be added in time, for example, covering the work undertaken directly for the Public Accounts Committee (Local) of the State House of Assembly and formal risk management.

1.2 Knowledge of the Manual All audit staff in the Office of the Auditor General for Local Governments are expected to have a reasonable knowledge of this manual and to follow the good practice it contains during their work. Audit staff has the responsibility to report areas where the manual needs to be updated or is considered to be deficient.

1.3 Overview of the Manual The main work of the Office of the Auditor General for Local Governments is to undertake quarterly audit inspection visits to all of the 57 local governments and local council development areas (referred to generically in this manual as local governments) in Lagos State. Chapters 2 to 6 cover this work from audit planning to audit reporting. This work is mainly regulatory or compliance audit. Part two of the manual covers other aspects of the work of the Office of the Auditor General for Local Governments that are also important. These include, for example, financial audit (opinion


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on the financial statements), inspections of completed capital projects, staff and pensioners’ verification.

1.4 Overview of Quarterly Audit Inspections This work follows five main stages which are each covered in a chapter of the manual:

Planning

Evaluating internal controls

Audit testing

Documentation of audit work

Audit reporting. This process is also shown in the following diagram:


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Key ‘A’ - Procedures are mostly analytical procedures ‘B’ - Procedures involve usage of basic substantive procedures ‘C’ - Procedures entail execution of comprehensive testing ‘D’ - Procedures entail detailed testing of audit evidence. Planning is important to ensure that all aspects of the work are completed and the work is undertaken efficiently. It occurs at two levels:

planning the time and number of auditors to visit each local government

planning the allocation of audit tasks to each auditor with time budgets. Evaluation of internal controls is an important first step for each inspection visit. Auditors


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should be able to gain some assurance from the quality of internal financial controls and may assist the local government by making detailed recommendations on how these may be further improved. If the internal controls are considered to be strong then only a sample of payment vouchers and other transactions may need to be checked. Audit testing is a core part of this audit work. Tests need to be undertaken carefully to ensure that all significant irregularities are identified and to assist with determining the appropriate audit opinion on the annual financial statements. Documentation of audit work is necessary to ensure that the work can be properly supervised and to ensure that adequate evidence is available to explain the results of our work to the Chair, Council Manager and Council Treasurer of the local government. It is also needed to ensure that the Auditor General can report adequately to the Public Accounts Committee (Local) on each local government. Audit reporting is the output and the public face of our work. Improving public accountability is a core part of the work of the Office of the Auditor General for Local Governments and our reports are available to the public and so must be written carefully to ensure that all key stakeholders understand the work which has been undertaken and the results that we have found. The most important stakeholder is the Public Accounts Committee (Local) of the Lagos State House of Assembly.


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Annex A

The INTOSAI basic principles are: (a) The SAI should consider compliance with the INTOSAI auditing standards in all matters that are deemed material. Certain standards may not be applicable to some of the work done by SAIs, including those organised as Courts of Account, nor to the non-audit work conducted by the SAI. The SAI should determine the applicable standards for such work to ensure that it is of consistently high quality. (b) The SAI should apply its own judgement to the diverse situations that arise in the course of government auditing. (c) With increased public consciousness, the demand for public accountability of persons or entities managing public resources has become increasingly evident so that there is a need for the accountability process to be in place and operating effectively. (d) Development of adequate information, control, evaluation and reporting systems within the government will facilitate the accountability process. Management is responsible for correctness and sufficiency of the form and content of the financial reports and other information. (e) Appropriate authorities should ensure the promulgation of acceptable accounting standards for financial reporting and disclosure relevant to the needs of the government, and audited entities should develop specific and measurable objectives and performance targets. (f) Consistent application of acceptable accounting standards should result in the fair presentation of the financial position and the results of operations. (g) The existence of an adequate system of internal control minimises the risk of errors and irregularities. (h) Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit. (i) All audit activities should be within the SAI's audit mandate. (j) SAIs should work towards improving techniques for auditing the validity of performance measures.


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Annex B

Quality Review: Auditor General for Local Governments

The indicators are broadly grouped as follows:

C = standard practice found in most Nigerian states B = good practice found in some Nigerian states A = best practice found or attainable in some Nigerian states.

1. Independence

1.1 There is recent (post 1999) legal provision (in a local government act) which protects the

operational independence of the Auditor General. This is complied with in practice(B).

1.2 The Auditor General is appointed by the Governor (confirmed by the State House of Assembly) and can only be removed by a two thirds majority (C).

1.3 The Auditor General has a reasonable budget to undertake the work. What is the comparison of actual to required auditors in post (Audit and EO (Audit) cadres)? (B)

1.4 The Auditor General is able to influence the recruitment of reasonable staff. Some audit staff have been recruited in the last couple of years (B).

1.5 Audit staffs have access to all the people, offices, data and systems they require to do their work (C).

1.6 Audit coverage is comprehensive including all expenditure (Overhead, capital and payroll/staff audit) and income in each of the local government (and any local council development areas etc) (C).

1.7 There is reasonable rotation of staff between different local governments (around once every two years) (B).

2. Approach

2.1 The level of audit testing is determined on the basis of the estimated level of risk and is influenced by the quality of internal financial control and internal audit in each local government (A).

2.2 Some reliance is place on internal audit in each local government and their reports are received regularly by the Auditor General each quarter/month (B).

2.3 The Auditor General makes some recommendations to improve internal financial control, rather than just indentifying irregular transactions (B).

2.4 Some use is made of systems based auditing, analytical review and audit sampling techniques (A).


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2.5 Reasonable attempts are made to communicate/interact with key stakeholders, for example, Chairman and Treasurer of each local government council, Public Accounts Committee, ExCO, press/media (B).

3. Audit Planning

3.1 A formal audit planning process is completed and implemented annually/quarterly (B).

3.2 There is comprehensive audit coverage of each local government. >75% = A >50% = B <50% = C.

4. Audit Manuals and other guidance

4.1 The Office has its own audit manual which has been reviewed in the last three years (A).

4.2 There is evidence of use of guidance from INTOSAI, AFROSAI-E or other professional guidance for public sector auditors (B).

4.3 Formal audit programmes have been developed and are used regularly to guide audit work on common key systems (B).

5. Audit Training

5.1 The office of the Auditor General has undertaken a formal training needs assessment in the last two years (A).

5.2 A reasonable audit training plan is being delivered. Most audit staff have received some formal training in the last year (B).

5.3 More than 20 percent of audit staff have formal professional qualifications (ICAN, ANAN) >20% = A 10 – 20% = B <10% = C.

6. Audit reporting

6.1 The last annual report was issued to the State House of Assembly within: 6 months = A 9 months = B >12 months = C.

6.2 The annual audit report is made public and available for the local media as soon as it has been submitted to the State House of Assembly (B).

6.3 The Auditor General’s report includes recommendations to improve internal financial control, rather than just identifying irregular transactions (B).

6.4 The annual audit report includes responses to audit observations and recommendations from relevant officials (B).


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6.5 There is a formal process for the follow-up of audit findings and recommendations by the Office of the Auditor General and the Public Accounts Committee (A).

6.6 The Auditor General and/or senior audit staff play an active and collaborative role with the Public Accounts Committee during its consideration of the Auditor General’s annual report (A).

6.7 The annual report of the Auditor General is considered by the Public Accounts Committee and formally reported back to the State House of Assembly within: <6 months = A <9 months = B >12 months = C.


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Chapter 2

Audit Planning

INTOSAI Auditing Standards state:

The auditor should plan the audit in a manner which ensures that an audit of high quality is carried

out in an economic, efficient and effective way and in a timely manner.

The following paragraphs explain planning as an auditing standard.

3.1.2 The SAI should give priority to any audit tasks which must be undertaken by law and assess

priorities for discretionary areas within the SAI's mandate.

3.1.3 In planning an audit, the auditor should:

(a) Identify important aspects of the environment in which the audited entity operates;

(b) Develop an understanding of the accountability relationships;

(c) Consider the form, content and users of audit opinions, conclusions or reports;

(d) Specify the audit objectives and the tests necessary to meet them;

(e) Identify key management systems and controls and carry out a preliminary assessment to

identify both their strengths and weaknesses;

(f) Determine the materiality of matters to be considered;

(g) Review the internal audit of the audited entity and its work program;

(h) Assess the extent of reliance that might be placed on other auditors, for example, internal audit;

(i) Determine the most efficient and effective audit approach;

(j) Provide for a review to determine whether appropriate action has been taken on previously

reported audit findings and recommendations; and

(k) Provide for appropriate documentation of the audit plan and for the proposed fieldwork.


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2.1 Key Requirements The key requirements of this chapter are:

Each audit inspection visit should be carefully planned and the size of the team and length of the visit adjusted to reflect the audit risk of the particular local government

The Permanent and Current Audit Files should be carefully maintained to document all key aspects of the audit inspection and act as a guide for future audit visits

An Audit Planning Sheet (see Annex A to this Chapter) should be developed as a guide for the audit, provide a common purpose for the team and to form the basis of allocating

Jobs/activities to team members (with time budgets).

Audit activities should be allocated with the aim of enriching the knowledge of all team members

The local government should be informed in adequate time of the date of the audit and the names of the audit team members.

The Zonal Coordinator should review and sign off the Audit Planning Sheet, the Current and Permanent Files.

2.2 Purpose of Audit Planning Audit planning and the preparation of audit plans is important because it:

(a) Establishes the way in which we will achieve our objectives. (b) Assists us to direct and control the work. (c) Helps to ensure that we devote sufficient attention to critical aspects of work. (d) Helps us to ensure that we complete our work efficiently and on time.

The overall audit planning process is a cascade of elements, as follows:

Annual Audit Plan

| |

Quarterly Team Work Allocations | |

Operational Team Planning

2.2 Annual planning

An annual work plan is produced each year for the Office of the Auditor General for Local Governments. This includes a monthly plan with the planned activities for each Directorate and, in addition, quarterly plans for each directorate.


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The main audit activities include:

quarterly visits to each of the 57 local governments

annual statutory report on the 57 local governments

reviews of the audits of the 20 Local Government Education Authorities and allied agencies and production of annual report

annual staff/salary verification exercise and monthly follow-up

pension audit – on a continuous basis

capital projects inspection exercise The Office of the Auditor General for Local Governments annual work plan is printed and this is

made available to the Governor, Public Accounts Committee of the State House of Assembly,

State Ministry of Local Government & Chieftaincy Affairs, the Chairs of the local governments

and other stake holders on local government matters.

2.3 Quarterly Team Work Allocations

The Director of Evaluation and Reporting writes to each local government with the dates of commencement of the next quarterly audit at least a month before the planned commencement. The Director of Evaluation and Reporting agrees the modality of audit for the next quarter and determines the audit teams and the local governments that they will visit in the next quarter. Quarterly plans are produced and posted for the audit of the 57 local governments, indicating the Zonal Coordinators, the Team Leaders and Auditors and the local governments that they will audit during the quarter. Planning different sized local governments

Local governments vary considerably in size with the largest being nearly three times the size of the smallest. In addition to the risk assessment, audit staff should be allocated to the different local governments on the basis of their size and the level of competence of the team members.

The larger local governments may be audited with a team of four auditors rather than the normal team of three auditors (including the Team Leader). Where the risk is high and so the level of audit work more demanding, the length of the audit may also be extended to three weeks rather than the usual two. This is decided by the Director of Evaluation and Reporting.

It is usual to provide each audit team with one rural (usually smaller) and one urban (usually larger) local government to audit. Thus, the team can spend more time on the larger council and less time on the smaller local government.


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Risk Model To determine the level of resources or staff needed to undertake each quarterly audit inspection visit, it is necessary to undertake a review of the risks associated with each local government and so the time needed to complete the audit. The type of information required to undertake this evaluation includes:

The size of the IGR (from Cash Flow, Statement 1)

Total Expenditure (Statement 5 – Revenue & Expenditure).

The quality of internal financial control – extent to which rules and regulations are followed in practice, bank reconciliations done on time? Staff vacancies? Quality of the Council Treasurer? – see Chapter 3 of this manual for further guidance

The quality of the Internal Auditor

The audit opinion of the Auditor General for Local Governments in the last statutory audit report (did the financial statements show a ‘true and fair view’?).

Whether the local government is urban or rural. The Six factors can then be combined to provide an overall assessment of risk:

Risk factor High – score 3 Medium – score 2 Low – score 1

Size of IGR (in Nmillions)

More than 200 15 - 200 Less than 15

Volume of expenditure (in Nmillions)

More than 750 300 - 750 Less than 300

Quality of internal financial control

Poor internal control Medium internal control

Good quality internal control

Quality of the internal auditor

Poor quality internal auditor

Medium quality internal auditor

Good quality internal auditor

Previous audit opinion

Financial statements do not show ‘true and fair’ view

Financial statements show ‘true and fair’ view

Urban or rural local government *

Highly urbanised local governments (1.5)

Medium (1) Highly rural local governments (0.5)

*This criteria only scores half the scores of the others.

The scores for each factor are then added together to provide an overall risk score. For example:

Size of IGR = N150 millions - Score 2

Volume of total expenditure = N800 millions - Score 3


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Quality of internal financial control = poor - Score 3

Quality of the internal auditor = medium - Score 2

Quality of Previous audit opinion = qualified - Score 3

It is an urban local government = urban - Score 1.5

TOTAL SCORE - 14.5

The staff and time spent at each local government is then adjusted by the following:

• High risk - score of 14 to 16.5 - three weeks visit and/or four auditors team

• Medium risk – score of 6 – 13 - two weeks audit visit (three auditors team)

• Low risk – score of 5 or below - one week audit visit (three auditors team)

Thus the example above with a total score of 14.5 would be considered high risk and so deserve a three week inspection with four auditors (including the team leader).

As a result of a low overall assessment of risk, a reduction in substantive testing sample sizes may be appropriate (see Chapter 4 – Performing Audit Inspections). This will allow the audit to be completed in less time.

3.3 Operational Team Planning

Operational Team Planning involves planning for audit visits to individual local governments. This is undertaken by the relevant Zonal Coordinator, the Team Leader and other team members reviewing:

the Permanent Audit File

the Current File of the previous visit (to identify any outstanding issues) and

holding discussions with the Team Leader responsible for the local government in the previous quarter.

At least a week before the quarterly inspection audits are due to start, the Zonal Coordinators write to the local governments of their zone to introduce the next audit team and propose the time of the Audit Entry Meeting. The object of Operational Team Planning is to identify issues which impact upon the approach to the audit inspection and which could influence the audit strategy and audit judgments. The initial review should normally involve consideration of the following:


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Previous quarter’s audit report

Outstanding issues from the previous quarter

Correspondence/knowledge of events since the previous audit

The level of action taken by the local government on the findings from the previous quarter.

Each local government is visited for an audit inspection during each quarter. The audit teams consist of a Team Leader and two or three auditors. The audit teams are rotated so the Team Leaders and other auditors visit a different local government in each quarter. In addition, the audit teams are rotated so that the Team Leaders supervise different staff each quarter.

A permanent file is maintained for each local government with the financial statements and the annual audit reports and other vital documentation. A current file is developed for each audit visit.

The end product of the planning process is the Audit Planning Sheet (see Annex A to this Chapter). This outlines the strategy for the audit assignment as a whole. The preparation of the Audit Planning Sheet is the responsibility of the Zonal Coordinator, supported by Team Leaders.

The timing of audit planning and the extent of the planning required will vary, depending upon the size and circumstances of each local government.

Identification of Auditable Activities

The core of the operational audit planning process is deciding what to audit from the many systems and activities of the local governments. This requires good knowledge of the Local Government’s business and a high level of professional judgment. Auditable activities consist of those subjects, which are capable of being defined and evaluated and may include:

Systems such as revenue, purchasing, payments etc

Cashbook, Departmental Vote and Expenditure Account (DVEA)

Major contracts and projects

Financial Statements. Auditors should be encouraged to use their judgment in the field to determine whether a particular area needs to be audited, considering any information that might come to their knowledge during their audit visit. However, this should be discussed with the Team Leader and perhaps the Zonal Coordinator.

For a typical local government the following systems and processes should be subject to audit verification during each quarterly audit inspection visit:

CASH & BANK ACCOUNT

Cash and bank accounts


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Cash receipts – treasury receipts, bank tellers, bank statements

Cash book – payment vouchers, cheques, bank charges CASH COLLECTION SYSTEM

Revenue receipts

Departmental Vote Revenue Account (DVRA)

Different revenue streams – statutory allocations, state grants (including project funds), internally generated revenue, LASAA, Wharf Landing fees and Land Use Charges

Controls over revenue receipt books DIRECT BANKING SYSTEM

Bank tellers and bank statements

Revenue consultants - contracts

Revenue consultants – payments OTHER REVENUE

Revenue Committee

Property rentals

Other Revenue EXPENDITURE AUDIT

Payment vouchers to cashbook and Departmental Vote Expenditure Account (DVEA)

Schedule of expenditure

Schedule of un-presented payment vouchers EXAMINATION OF PAYMENT VOUCHERS

Regularity of payment vouchers

ADVANCES LEDGER

Prepare schedule of advances not deducted from salaries DEPOSIT LEDGER

Prepare schedule of deposit balances, VAT, Withholding Tax etc INVESTMENT LEDGER

Movements, interest, records FINANCIAL STATEMENTS


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Statement of assets and liabilities

Cash flow statement

Statement of Revenue and Expenditure

Notes to the accounts

FOLLOW-UP

Follow-up of the level of action taken by the local government on the audit findings from the previous quarter.

A more complete list of systems, activities and auditable objects may be found in the Audit

Guide in the Annex to Chapter 4.

Production of the Audit Planning Sheet

In preparation for the quarterly planning meeting between the Zonal Coordinator, Team Leader

and other team members, the Team Leader may develop a draft Audit Planning Sheet (see

Annex A to this Chapter). This details the work that will be undertaken at a specific local

government for a particular quarter. It forms the basis for the allocation of audit work to each of

the team members at the quarterly meeting.

This document sets out the details of each audit assignment, including the objectives and notes

of any issues for the auditor to consider. The purpose of the Audit Planning Sheet is to ensure

that the exact terms and details of the audit have been agreed and understood by all members

of the audit team. Management at the local government will be asked to provide comments on

the document so that any thoughts or concerns can be built into the audit at this stage of the

planning process, thus ensuring that the mutual benefit of the complete audit procedure will be

maximised. The document must be agreed and authorised prior to commencement of the audit

work on site by the Zonal Coordinator/Team Leader, and must be retained in the current file at

the end of the audit.

Auditors should also consider undertaking the following background research where deemed

necessary. It should be clearly noted that this list is not exhaustive:

Reviewing LGA minutes Financial Memoranda Any relevant legislation Any LGA policy documents.

Other documentation considered relevant and appropriate to the audit e.g. code of conduct for

councillors and officers.

Therefore, the purpose of producing an Audit Planning Sheet is to provide:


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• A well constructed plan encompassing the scope of an assignment to achieve the audit objectives

• A basis for assigning work to auditors

• A record of work done

• A comparison of work done with work planned

• The basis for a review of the future Audit Team Workload

• A means for management of the Office of the Auditor General Local Governments to supervise each audit adequately and review progress.

The Audit Planning Sheet (see Annex A to this Chapter) may require amendment in light of 'on-

the-job' experience as the audit progresses. If this is found to be necessary, this should be

confirmed with the Zonal Coordinator. Where an Audit Planning Sheet has been fine-tuned

during the course of an audit, this must be fully and properly documented, and on completion of

the audit, a final version of the Audit Planning Sheet must be produced, authorised (by the

Zonal Coordinator) and retained in the Current File to inform future audits.


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Annex A

AUDIT PLANNING SHEET

LOCAL GOVERNMENT

PREPARED BY TEAM LEADER

DATE REVIEWED BY ZONAL

COORDINATOR

DATE

AUDIT AREA AUDITOR TIME

BUDGET

ACTUAL

TIME SPENT

COMPLETION

DATE

Cash book

COMMENTS

Vote Book

COMMENTS

COMMENTS

OFFICER SIGNED BY: DATE

Zonal Coordinator

Team Leader

Auditor 1

Auditor 2

Auditor 3


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AUDIT PLANNING SHEET (Continued)

AUDIT AREA AUDITOR TIME

BUDGET

ACTUAL

TIME SPENT

COMPLETION

DATE


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Chapter 3: Evaluating and Testing Internal

Controls


3.3 Study and Evaluation of Internal Control

3.3.1 The field standards include:

The auditor, in determining the extent and scope of the audit, should study and evaluate the

reliability of internal control.

The following paragraphs explain internal control as an auditing standard.

3.3.2 The study and evaluation of internal control should be carried out according to the type of

audit undertaken. In the case of a regularity (financial) audit, study and evaluation are made

mainly on controls that assist in safeguarding assets and resources, and assure the accuracy and

completeness of accounting records. In the case of regularity (compliance) audit, study and

evaluation are made mainly on controls that assist management in complying with laws and

regulations. In the case of performance audit, they are made on controls that assist in conducting

the business of the audited entity in an economic, efficient and effective manner, ensuring

adherence to management policies, and producing timely and reliable financial and management

information.

3.3.3 The extent of the study and evaluation of internal control depends on the objectives of the

audit and on the degree of reliance intended.

3.3.4 Where accounting or other information systems are computerized, the auditor should

determine whether internal controls are functioning properly to ensure the integrity, reliability

and completeness of the data.


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3.1 Key Requirements

The key requirements of this chapter are:

• Key internal controls should be identified and tested

• Key internal controls should be evaluated to decide whether we can rely on them and so avoid the need for 100% substantive testing

• The results of testing key controls should be discussed with the Zonal Coordinator and the strategy for sampling of transactions agreed and documented in the Current File.

3.2 Responsibility for Internal Control

It is the responsibility of the management of local governments to keep complete and accurate

operational and accounting records, which assist in:

• Controlling departmental activities

• Safeguarding assets

• Preventing or detecting errors, frauds or other irregularities

• Preparing financial statements

• Complying with legislation

• Achieving the local government’s objectives.

Management therefore needs to maintain internal controls designed to ensure the completeness

and accuracy of records and the validity and reliability of the entries they contain.

The internal control procedures are documented in the Financial Memoranda for Local

Government (current edition 1998) and the Guidelines on Administrative Procedures for Local

Governments (2011).

Limitations on the Effectiveness of Internal Control

Any system of internal control is always subject to the possibility of errors. No internal financial

control structure, however elaborate, can guarantee efficient administration, completeness and

accuracy of records or be full-proof against fraud; especially when those holding positions of

authority or trust are involved.

For instance, in the following situations, internal control measures will prove to be ineffective:


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segregation of duties controls are avoided by collusion between officials

authorisation controls are abused by those who sign payment vouchers

management (for example, the Chair or Council Treasurer) over-ride key internal controls

selection and training may improve the competence and integrity of personnel operating the system, but these qualities may change due to pressures exerted from within or outside their working environment

errors occur due to fatigue of staff, misinterpretation of regulations, carelessness or misunderstandings.

The Auditor's Use of Internal Control

The auditor's objective in evaluating and testing controls is to determine the degree of reliance

that may be placed on the accounting and other controls. If the auditor is reasonably assured

that the internal controls are effective, the extent of compliance and substantive tests may be

reduced and 100% vouching may not be necessary. However, due to the limitations in any

system of internal control, it will always be necessary to perform some substantive testing.

3.3 Types of Internal Control

The following are some examples of types of internal control:

• Organisational control - The organisation chart structure for local governments is uniform. It effectively defines and allocates responsibilities, reporting lines, delegation of responsibility and authority. To back this up, Local Governments also have in place a schedule of Authorised Signatories.

• Segregation of duties - This is separation of duties or responsibilities that would, if combined by one individual, enable that individual to record and process a complete transaction. Segregation reduces the risk of manipulation or error and increases the degree of checking as the work of an officer checks or is complementary to that of another. As a rule, separate officers or sections should be responsible for the following tasks:

authorisation of local purchase orders or payment vouchers receipt or custody of the goods or services maintenance of the purchase ledger, cash book and other accounting records.

• Physical control Such controls are primarily concerned with the custody of assets and involve procedures and security measures designed to ensure that access to assets is limited to authorised personnel.

• Supervision Any system of internal control must include supervision of the routine transactions and operating procedures by responsible officers.

• Authorisation and approval All transactions require authorisation or approval by an appropriate, responsible officer. Authorisation limits have been established via the Financial


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Memoranda for Local Government (1998).

• Arithmetic and accounting These controls operate within the recording function to check that transactions to be recorded and processed have been authorised and are complete and accurate. These controls include checking arithmetical accuracy (re-computing/casting), maintaining and checking reconciliation statements, document sequence and count checks.

• Personnel Lagos State Government has put policies in place to ensure that a formal process has been established to assist and encourage personnel with Accounting and Audit functions to attain the necessary capabilities to fulfill the responsibilities of their posts. It is a fact that the proper functioning of an operational and/or financial system depends on the competence and integrity of those operating it, and therefore qualifications, selection, training and the personal characteristics of officers involved are important features to be considered in establishing any control mechanism.

Identification and Evaluation of Key Controls

A review of the accounting and internal control systems should be performed to identify the key

controls, which exist to prevent or detect material misstatements. .

Key controls are those controls, which are integral to the effective system as a means of

preventing or detecting material misstatements. By identifying and testing the key controls, it is

not essential to test all the internal controls in a system. Controls will often relate to the

authorisation of a transaction, or the evidence of review of a process.

A list of some of the key internal controls in local governments is included as Annex A to this

Chapter.

As a result of identification and evaluation of key controls, the level of risk of each of the

systems/activities subject to audit testing should be assessed. Considerations, which influence

the level of risk will include, for example:

• The control environment – are key controls applied? Is internal audit well performed?

• The nature and amount of the transactions and balances involved – what is the quarterly level of revenue and expenditure?

• The results of the previous audits – an adverse audit opinion (not true and fair) will result in high risk and 100% substantive testing.

• The nature of any changes to the accounting and internal control systems since they were previously tested.

• Vacancies of key staff, for example, second signatory.

3.4 Tests of Control (compliance testing)


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Tests of control are performed to obtain audit evidence that the key controls on which reliance is

sought operate effectively. This means that the controls exist and have effectively operated

throughout the reporting period.

By testing the identified key controls it is not necessary to test all the controls present in the

system as these provide the controls, which are integral to the effective operation of the system.

Tests of control may include:

• Corroborative enquiries (third party confirmations) about, and observation of, internal control functions

• Inspection of documents supporting controls or events to gain audit evidence that internal controls have operated properly, for example verifying that a transaction has been authorised or a reconciliation has been approved

• Examination of evidence that management has carried out its own reviews, for example minutes of Executive Committee meetings at which audit reports are reviewed and corrective actions decided on

• Re-performance of control procedures, for example reconciliation of bank accounts, to ensure they were correctly performed by the responsible officer

When collecting evidence about the effective operation of internal controls, relevant

considerations are:

• How they were applied

• The consistency with which they were applied during the period

• Who applied them.

If a deviation is identified, specific enquiries must be made to identify whether the deviation was

isolated (these enquiries may include additional testing) and whether there were any effective

alternative sources of control during the period. Provided that the additional testing confirms

that the deviation was isolated or that a mitigating control proved effective, reliance can still be

placed on the effective operation of the control before and after the period of deviation.

If errors or weaknesses are identified in the control system, the risk of the specific audit area

should usually be revised as follows:

Original level of risk 1-3 errors 4 or more errors

Low Increase to medium risk Increase to high risk

Medium Increase to high risk Increase to high risk


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The effect of these revisions may be to increase level of substantive testing by increasing the

sample sizes.

The output of testing the key internal controls will be an assessment of the audit risk for each of

the major systems which are subject to audit. In each case the system should be assessed as

being of high medium or low risk. This risk rating will act as a guide to the level of

transaction/substantive testing that is to be undertaken and may be documented in the form of a

table as follows:


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System/activity Risk

assessment

Comments

Cash book High

Revenue and Expenditure

Abstracts

Low

Vote books Medium

Federal Government Grants Low

Continued…

This risk rating should be documented in the Current File and be signed off by the Zonal

Coordinator.


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3.5 Sample Sizes for Transaction Testing (substantive testing)

Transaction testing may be reduced where the key internal controls have been found to be

operating reliably over the period covered by the audit. In this case sample sizes for

substantive testing may be adjusted as follows:

Level of risk Sample size

High 100%

Medium 100% above say N100,000

and 50% below this level

Low 100% above say N100,000

and 25% below this level

A justification for the reduced level of substantive testing must be included within the planning

memorandum. In addition, care should be taken that contracts etc are not split into several

payments to ensure that transaction is subject to a reduced likelihood of being tested.


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Annex A

LOCAL GOVERNMENT - KEY INTERNAL CONTROLS

1 Budgeting and accounting

1.1 A suitable, comprehensive budget (including revenue, capital and aid receipts) is agreed

by the Council and the Chair, before the start of the year, with figures showing the previous

year's actual expenditure.

1.2 Vote Registers (DVRA and DVEA) are properly maintained to ensure that all receipts

and payments are properly accounted for.

1.3 Monthly and quarterly financial statements are produced within one month of the end of

each month and submitted to the Office of the Auditor General for Local Governments.

1.4 A suitable, comprehensive Chart of Accounts and budget classification (developed by

the State Ministry of Economic Planning & Budget) is adopted by each local government.

1.5 Annual financial accounts are prepared in accordance with guidance issued by the

Federation Account Allocation Committee (2005), they are audited within six months of the year-

end and show a ‘true and fair view’.

1.6 Sanctions for expenditure outside the official authorised budget or appropriations are

adequately enforced by the Treasurer, the Chair or the Council.

2 Revenue

2.1 An annual listing of authorised tax, rates and other fees and charges should be publicly

available.

2.2 All cash revenue should be receipted and promptly banked intact.

2.3 Income records and receipts should be independently reconciled to the bank statements

on a regular basis and inconsistencies adequately investigated.


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2.4 A monthly summary of all income received (with comparisons to previous year and the

budget) and 'arrears of revenue' return should be provided to the Council (or Revenue

Committee) and the Auditor-General for Local Governments.

3 Expenditure controls

3.1 All payments are properly authorised and certified by the internal auditor

3.2 An official invoice or receipt should be retained for all expenditure.

3.3 There should be an approved list of suppliers and for the more frequent purchases an

approved price list.

3.4 Competitive tendering should be used for all significant orders. Depending on the size of

the order the following should be used:

obtaining three written quotations

formal tendering where suppliers have to submit sealed detailed bids for the work – when the goods or services are expected to cost N500,000 (half a million) or above

approval is obtained from the State Governor for projects of over N35 million(in line with existing Guidelines)

3.5 Proper segregation of duties should be maintained, the following three tasks should be

undertaken by separate staff and/or sections:

authorisation of local purchase orders or invoices for payment

receipt or custody of the goods or services

maintenance of the purchase ledger, cash book and other accounting records.

3.6 Formal bank reconciliations should be undertaken by staff who are not responsible for

maintaining the cash book at least once a month. The bank balances recorded on the bank

statements should be clearly balanced to the amounts recorded in the cash books. Any

differences should be investigated and cleared by senior officers.


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4 Payroll

4.1 All posts and appointments should be authorised by the Local Government Service

Commission for officers on GL07 and above or the Human Resource Officer for lower grade

officers.

4.2 Changes between each periods payroll should be adequately explained and checked by

a nominated officer. This reconciliation and the payroll, should be formally authorised.

4.3 There should be careful liaison between the relevant line department, the Council

Treasurer and the relevant Local Government Service Commission. Records held by each of

these sections should be carefully reconciled at least annually to ensure that an agreed list of

employees is maintained.

5 Staff Advances

5.1 A listing of outstanding advances should be reviewed regularly (quarterly) by senior staff

in each department and the Council Treasurer. Any unusual, late or large items should be

investigated.

5.2 Last pay certificates should be prepared promptly and completely for all staff leaving.

Any outstanding advances should be deducted from the final pay.

6 Stock and fixed asset records

6.1 Independent stock takes should be undertaken at least once a year and, additionally,

whenever there is a change of stock keeper.

6.2 An appropriate Assets Register should be maintained of all fixed assets (land, buildings,

vehicles, IT equipment, furniture etc). There should be checks at least once a year that all the

assets are clearly accounted for and are held securely.


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6.3 The disposal of all public assets is subject to the approval of the Local Government

Executive Committee and the Auditor General for Local Governments. Public auctions should

be held for all significant asset disposals.


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Chapter 4

Performing Audit Inspections


3.2 Supervision and Review

3.2.1 The field standards include:

The work of the audit staff at each level and audit phase should be properly supervised during

the audit, and documented work should be reviewed by a senior member of the audit staff

The following paragraphs explain supervision and review as an auditing standard.

3.2.2 Supervision is essential to ensure the fulfilment of audit objectives and the maintenance of

the quality of the audit work. Proper supervision and control therefore is necessary in all cases,

regardless of the competence of individual auditors.

3.2.3 Supervision should be directed both to the substance and the method of auditing. It

involves ensuring that:

(a) the members of the audit team have a clear and consistent understanding of the audit plan;

(b) the audit is carried out in accordance with the auditing standards and practices of the SAI;

(c) the audit plan and action steps specified in that plan are followed unless a variation is

authorised;

(d) working papers contain evidence adequately supporting all conclusions, recommendations

and opinions;

(e) the auditor achieves the stated audit objectives; and


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(f) the audit report includes the audit conclusions, recommendations and opinions, as

appropriate.

3.2.4 All audit work should be reviewed by a senior member of the audit staff before the audit

opinions or reports are finalised. It should be carried out as each part of the audit progresses.

Review brings more than one level of experience and judgment to the audit task and should

ensure that:

(a) all evaluations and conclusions are soundly based and are supported by competent, relevant

and reasonable audit evidence as the foundation for the final audit opinion or report;

(b) all errors, deficiencies and unusual matters have been properly identified, documented and

either satisfactorily resolved or brought to the attention of a more senior SAI officer(s); and

(c) changes and improvements necessary to the conduct of future audits are identified, recorded

and taken into account in later audit plans and in staff development activities.



All audit work should be adequately planned and an Audit Planning Sheet completed

Letters of commencement and introduction should be sent on time

A suitable Entry Meeting should be held and minuted

Key internal financial controls should be documented, evaluated and tested

A suitable level of substantive testing should be undertaken in line with the audit guide

A suitable Exit Meeting should be held and minuted with the Team Leader and Zonal Coordinator in attendance

The Inspection Report should be reviewed by the Zonal Coordinator and signed off by the Director of Evaluation & Reporting

Follow-up and post-audit review should be undertaken

Similar inspection visits are made to local government education authorities and allied agencies.

4.2 Preparation for an Audit


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Planning is critical to the success of each audit assignment. The aim is to ensure that the

planned work should efficiently satisfy the audit objectives. Adequate time must be set-aside for

this stage, which identifies priorities, objectives, and allocates staff time to each activity.

The Team Leader should undertake the preparation for an audit including the development of

Audit Planning Sheet, with input from other team members and authorisation by the Zonal

Coordinator (see Chapter 2 for further details).

Research

It is essential for auditors to gain a good understanding of the local government and its

operations. Sources of information should include, but not necessarily be limited to:

• Audit report for the previous quarter’s inspection visit

• The Permanent File, Current File and working papers (including the extraction of follow-up points from the previous quarter audit inspection)

• Reference Library

• Relevant legislation (see Annex A to Chapter 14 of this Manual)

• Reports to Public Accounts Committee (Local) of the State House of Assembly

• Financial and any other relevant regulations in addition to the Financial Memoranda and the Guidelines on Administrative Procedures for Local Governments

• Previous year’s financial statements and report of the Auditor General for Local Governments

• Financial statements for the previous months/quarters for the current financial year

• Organisation charts and contacts for key staff at the local government.

At the end of this stage, the auditor should be in a position to form a view about:

• Systems boundaries or limitations

• Identification and assessment of risks

• Identification of key personnel staffing structures and reporting lines.

4.3 Phases of Audit

Quarterly inspection audits should generally consist of eleven phases, with supervisory review

occurring at appropriate intervals:

• Letter of Commencement sent by the Director of Evaluation & Reporting informing the local government of the audit (at least a month before the start of the audit)


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• Letter of Introduction from the Zonal Co-ordinator or the Team Leader (at least a week before the planned start of the inspection visit)

• Development of Audit Planning Sheet

• Entry meeting

• Evaluation of internal controls

• Substantive testing

• Exit meeting

• Report of the Inspection Audit

• Response from the local government and appraisal of the response

• Follow-up

• Post-audit review.

4.4 Commencement Letter

At least a month before an audit inspection is scheduled to begin, the commencement letter

should be sent by the Director of Evaluation and Reporting to the Chair of the local government

being audited and copied to the members of management affected by the audit. The letter

should notify them of the assignment and it should indicate that an entry meeting will be

conducted prior to the audit. A point of contact and phone number of the audit office should be

Included.

4.5 Letter of Introduction

At least a week before the start of the inspection visit, the Zonal Coordinator should send an

introductory letter to the Chair of the local government copied to the key managers. This should

schedule an entry meeting to begin the exchange of information that is needed during the audit.

It should also list the documents and records that will be needed for the audit and should be

made available at the Entry Meeting.

4.6 Audit Entry Meeting

At the start of the audit visit an entry meeting is held by the Zonal Coordinator and Team Leader

(and other members of the audit team) with key officers and management staff of the local

government including the following:

Executive Chair

Council Manager

Council Treasurer

Heads of Department.


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The agenda for this meeting should include:

introduction by the Team Leader

outstanding issues from the previous audit

information from the Office of the Auditor General for Local Governments

objectives and Scope of the exercise

significant developments at the local government

providing documents and records needed for the audit (previously listed in the introductory letter).

The entry meeting should ensure that the management of the local government endorses the

audit and allows the auditors to obtain critical information for the audit, as well as demonstrating

common courtesy.

The meeting should establish, among other things:

• Audit and local management concerns

• Client expectations in relation to the outcome

• Any obvious local management and/or audit or operational issues arising at this stage, which might impact on the work to be undertaken

• Any known or perceived current and future pressures facing the audit.

It should confirm the auditor's understanding of systems boundaries and objectives and should

establish:

• The best timings for the key stages of the audit for both the local government and the Audit Team

• The key contact(s) within the local government

• The audit closure arrangements and interim/final reporting lines

During the entry meeting, the audit Zonal Coordinator/Team Leader should explain the audit

process, identify departmental heads' concerns and suggestions for objectives, and generally

open the channels of communication that are necessary for a successful engagement. The

other members of the audit team should also attend this meeting.

Formal minutes should be documented for the Entry Meeting and copies sent to all the officials

who attended.


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4.7 Evaluation of Internal Controls

Auditors should identify and evaluate the key internal controls for each of the financial systems

which they review (see the checklist in Annex A to Chapter 3). The key internal financial

controls should then be tested to ensure that they are operating reliably over the period subject

to audit. Substantive testing may be reduced, with the use of audit sampling, where the internal

controls are operating reliably (see Chapter 3 for more details).

The reliance levels are interpreted below:

High control risk arises if controls are weak or if no reliance is to be placed upon the internal

system and no tests of control are to be performed. 100% substantive testing should be

introduced.

Medium control risk may be applied to an audit area where some internal control features exist

on which reliance can be placed although strong controls cannot be applied to all aspects of the

audit area. Reduced testing may be appropriate if agreed by the Team Leader and Zonal

Coordinator.

Low control risk is appropriate if a strong and reliable internal control system appears to exist

and their reliability is confirmed by testing of the controls (for example, that proper bank

reconciliations are undertaken each month and reviewed by the Council Treasurer). Audit

sampling of transactions (payment vouchers etc) should be agreed with the Team Leader and

Zonal Coordinator.

Control Recommendations

If the internal financial controls are not operating properly and reliably, specific

recommendations should be developed to introduce the required controls. These

recommendations should be reviewed by the Team Leader and Zonal Coordinator, reported at

the exit meeting and included in report of the inspection visit.

4.8 Substantive Testing

Substantive tests are performed to obtain sufficient and appropriate audit evidence that the

transactions and balances are accurate, authorised and regular. They are also necessary to

identify any possible errors, mistakes or irregularities.

Substantive tests include analytical review, observations and enquiry (e.g. the confirmation that

a staff list is accurate by tracing employees), re-computations and inspections (e.g. physical

inspection of items in store).

Substantive tests of details are often the most appropriate way to test compliance with relevant

laws and regulations.


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Level of Substantive Testing

The number of substantive tests may be reduced where tests of control provide satisfactory

evidence as to the effectiveness of the internal financial control systems. However, a minimum

level of substantive tests should be performed for each material class of transactions and

balances.

Audit sampling is described in Chapter 3.

Audit Query

Audit queries may be raised by staff of the Office of the Auditor General for Local Governments,

but queries may also be raised by the internal auditor of a local government, the Council

Treasurer or the Council Manager. If they are over-ruled by the Chair of the local government

they should be referred to the Audit Alarm Committee (if it exists) and the Office of the Auditor

General for Local Governments.

Schedules 1 and 2 of the Guidelines on Administrative Procedure for Local Governments (2011,

pages 44-46) details the irregularities or offences which may result in an audit query being

issued, the time limit for a reply to the query and the sanctions which are to be applied.

If an audit query is needed to be raised during an audit, the Team Leader should discuss the

issue with the Zonal Coordinator. The Zonal Coordinator should review the relevant sections of

the file and initial and date them. The audit query is written and signed by the Team Leader and

sent to the Executive Chair with a copy to Council Treasurer or other head of department who is

responsible for the particular area.

The audit queries are reported during the Exit Meeting (see below) and copies are also sent

with the Audit Inspection Report and signed off by the Head of Evaluation and Reporting.

4.9 Exit Meeting

Auditors should keep management informed of how the audit is progressing and discuss

possible findings as these are identified throughout the audit. This practice helps ensure that the

results of an audit are accurate. It promotes a team approach by actively involving local

government management in developing solutions to issues identified by the auditors. Early

discussion of possible findings also allows local government management to begin to introduce

any corrective action that is needed.

At the end of the audit fieldwork, an Exit Meeting should be held with the senior management of

the local government. At this meeting the Team Leader or Zonal Coordinator should review the

work of the audit team and provide details of all audit queries and other audit findings. The local

government management may provide responses at this stage or after they have received the

formal written Audit Inspection Report and a written copy of any audit queries.

The following officials should attend the Exit Meeting:


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Executive Chair

Council Manager

Council Treasurer

Heads of Department

Zonal Coordinator

Team Leader.

The other members of the audit team should also attend this meeting.

Formal minutes should be documented for the Exit Meeting and copies sent to all the officials

who attended.

4.10 Audit Inspection Report

After the fieldwork' for the quarterly inspection audit is complete, a written Audit Inspection

Report should be prepared and issued using the Office of the Auditor General for Local

Governments’ standard format. This report should include an overall opinion and provide details

about any significant issues, or findings, identified during the audit. Findings should be

presented by identifying the issue, describing the risks and the corrective action to be taken by

the local government.

The Audit Inspection Report should include detailed recommendations to improve internal

financial control, details of any irregularities identified and any audit queries raised should be

sent with the report. Any audit opinions or conclusions should be justified with clear evidence

from the audit testing.

The AGLG or the Director of Evaluation and Reporting signs routine reports for audits. These

should be issued to the Executive Chair, Council Treasurer and Council Manager (with the

fourth copy for the audit file). These officials are in a position to take corrective action or ensure

that any necessary changes are made by drawing the attention of other heads of department

where necessary.

A formal written response to the Audit Inspection Report should be received within two weeks of

the receipt of the audit report

Response from the local government and appraisal of the response

Procedures that should occur, as the audit is wrapped-up include:

• Doing an overall review of the working papers to see that all procedures are complete, working papers are signed-off

• Comparing the planned and actual completion dates and providing explanations for any material variances


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• Reviewing the result of the audit planning and lessons for future inspection visits

• Submitting the working papers for filing.

Some of the above tasks may be combined with a post-audit review when the Director of

Evaluation and Reporting, the Zonal Coordinators and the Team Leaders should review the

results of the quarterly inspection audits to ensure that they were completed as required and the

necessary steps are taken for future audits.

4.11 Follow-Up

The Director of Evaluation and Reporting should follow-up to ascertain that appropriate action is

taken on reported audit issues and findings. Follow-up is a process by which auditors determine

the adequacy, effectiveness and timeliness of actions taken by local government management

on reported audit findings.

The Director of Evaluation should determine the nature, timing and extent of follow-up and

Reporting, to be completed usually within one year of issuing the final report or shortly after the

last completion date for management's action plans have occurred.

Auditors should determine what corrective action was taken and if it is achieving the desired

results.

4.12 Audit Control and Review

In order to ensure consistency and compliance with professional standards and audit

procedures, it is essential that all audit work is effectively overseen at all stages of the process.

The audit files and reports should be reviewed and signed off by the Team Leader and Zonal

Coordinator at each stage and particularly before the Exit Meeting and again before the audit

report is issued.

This process is designed to ensure that:

• All work undertaken complies with the requirements of this manual and professional good practice.

• Work programmes are completed unless deviations are both justified by the findings of the work undertaken and authorised by the Zonal Coordinator.

• Audit files are complete and properly structured.

• Appropriate audit techniques have been used.

• All working papers adequately support the findings, conclusions and recommendations of the report to which they relate.

• The related audit report is complete, accurate, objective, clear, concise, constructive and timely.


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• The objectives of the audit assignment are met within the allocated time budgets or appropriate time variations were authorised.

The Zonal Coordinator's overseeing of the audit must be evident from the working papers. The

audit management review process must be evidenced by the reviewer initialling and dating the

appropriate working papers. Issues raised during the review process should be adequately

recorded and cleared before final sign-off.

4.12 Post Audit Review

In April to June each year a post audit review is undertaken by the Director of Evaluation and

Reporting. This reviews the inspection visits of the four quarters of the previous years,

considers the quality of the work which was undertaken and documents any lessons to be learnt

for future years.

4.13 Comments of the Auditor General for Local Governments on

Local Government Education Authorities and Allied Agencies

The audit of the financial statements and financial management of the 20 Local Government

Education Authorities of Lagos State are undertaken by auditing firms. However, the Office of

the Auditor General for Local Governments provides an annual report to the Public Accounts

Committee (Local) of Lagos State House of Assembly with comments on the financial

management of these bodies and seven other allied agencies.

4.14 Appointment of external auditors

The external auditors for the Local Government Education Authorities and other allied agencies

are appointed by their boards.

The Office of the Auditor General for Local Governments maintains a list of audit firms which are

considered suitable to undertake this form of audit work.

Audit firms wishing to join the list write to the Auditor General and this letter is passed to the

Director of Planning, Research and Development. A letter of acknowledgement is sent to the

audit firm. An assessment of the audit firm is undertaken based on their number of staff, the

quality and number of Institute of Chartered Accountants of Nigeria (ICAN) members they have

and their years of experience.

The Director of Planning, Research and Development regularly interviews the managing

partners of the firms which are on the list.

The auditors of the Local Government Education Authorities and other allied agencies are

changed every three years. The Office of the Auditor General for Local Governments provides


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them with the names of the audit firms on the approved list and the rates that would be

appropriate for this work.

4.15 Inspection Process

1. The audit firms submit their reports to the Auditor General for Local Governments within

one month of their completing their audit fieldwork.

2. The audit report is reviewed by the Team Leader and the salient points are high-lighted.

3. An audit team of three auditors including the Team Leader visit the Local Government

Education Authorities and allied agencies for one week. In the case of the Local

Government Staff Pension Board, this is increased to two weeks due to the level of work

involved. This work is usually undertaken during July to September.

4. As well as visiting the offices of the Local Government Education Authorities the auditors

visit a sample of schools to ensure that they have received the running cost money sent

by the Local Government Education Authority.

5. The work is essentially a compliance audit to ensure the salient points raised by the

external auditors are being addressed.

6. The timing of these inspection visits should be dependant upon when the work by the

audit firms is completed and their reports have been received.

7. After the fieldwork has been completed, an inspection report is submitted to the LGEA

and other allied agencies.

8. The Local Government Education Authority sends a response to the to the Director of

Evaluation and Reporting on the report from the Office of the Auditor General for Local

Governments and this is appraised by the relevant Team Leader, approved by the

Auditor General and sent back to the relevant body.

9. A report is then collated by the Director of Evaluation and Reporting and approved for

issue by the Auditor General. The report is sent to the Public Accounts Committee

(Local) of the House of Assembly and copies of the report are sent to:

the relevant Local Government Education Authority or allied agency

the Governor

Chief of Staff of Lagos State

Commissioner for Education

State Universal Basic Education Board (SUBEB).


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4.16 Inspection programme

The inspection programme covers the receipts and payments by the Local Government

Education Authorities and the significant points raised in the reports from the relevant external

auditor.

The Local Government Education Authorities receive monthly subventions from SUBEB (State

Universal Basic Education Board) and the State Treasury Office. This money is then used to

cover the running costs of the Local Government Education Authority and provide support to the

schools.

The receipts from SUBEB are reviewed.

The payment vouchers (PVs) for running costs are inspected.


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Annex A

AUDIT PROGRAMME & CHECKLISTS

This audit programme and checklists provide comprehensive guide for carrying out

routine examination of accounting books and records, procurement, verification of

projects and financial statements in routine field audit work (originally developed by

the Office of the Auditor General for Local Governments of Lagos State).

SECTION I: MAIN BOOKS OF ACCOUNT

A - Cashbook

1. Main Activities Involved

The cashbook is the main analytical book where each money received or each amount

paid is recorded.

2. Control Objective

To ensure that the receipts and payments made by the local government are correctly

recorded as provided for by financial memoranda chapter 19.

3. Risks

The risk for inaccurate cashbook postings is that the actual receipts or payments may

be under or over stated thereby rendering the account balances at the end of a

reporting period unreliable.

4. Records Required at Audit

(a) cashbook

(b) payment vouchers

(c) receipt vouchers

(d) bank reconciliation statements

(e) bank certificates

5. Estimated Time Budgets Time Allocated Actual Time Spent Variance Explanation of the variance

6. Audit Programme Ref Audit Programme Tasks


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1. Post all payment vouchers on the credit side of the cashbook.

Post all receipt vouchers on the debit side of the cashbook.

2. Record any unpresented payment or receipt voucher and consult the cashier for its whereabouts

3. Where deductions are made on payment or salary voucher and the payment is made by cash, the gross amount

must be entered as the payment in the cash column on the credit side and a treasury receipt must be made out

for the deduction which is then entered as a receipt in the cash column on the debit side of the cashbook.

4. Ensure that when a cheque is drawn to obtain cash from the bank, the amount of the cheque should be entered

in the bank column on the payment side of the cashbook and if the cash is received in the Treasury on the same

day, the identical amount shall be entered in the cash column on the receipt side of the cashbook. These two

entries should be marked as ‘contra’

5. At the beginning of each month, the cash in hand or at bank at the end of the previous month shall be brought

forward to the receipt side of the cashbook.

6. At the end of each month, the difference between the totals of the receipts columns and the totals of the payment

columns, is the amount of the cash in hand which figure shall be entered on the credit side of the cashbook, thus

bringing the two sides into agreement. Should, however, the bank payments total exceed the receipts total, the

balance is entered on the debit side of the cashbook and is the amount, by which the bank account is overdrawn.

7. At the end of each month, a bank reconciliation statement must be produced. The transaction according to the

bank statement must be checked against the entries in the Local Government’s cashbook and the two records

reconciled. The format for the preparation of bank reconciliation is attached at the end of this Guide.

8. Scrutinize bank paying-in-slip, ensure that they have been properly receipted by the bank and verify any

alterations made thereon.

9. Ensure that Treasury Receipts have been made out for and correspond with the details shown on paying-in-slips.


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B – Revenue & Expenditure Abstracts


The Daily and monthly abstracts of revenue and expenditure provide an

analysis of the financial transaction recorded in the cashbook and the journal

under the various heads and sub-heads of revenue and expenditure and

other accounts.


To ensure that the financial transactions of the Local Government are done

accurately, maintained and up-dated.

3. Risks

Prone to inaccurate data and financial statements.


(a) Abstracts of Revenue

(b) Abstracts of Expenditure

(c) Payment vouchers



1. Post all receipts and payments vouchers into the daily abstracts of revenue and expenditure under the various

sub-heads and accounts quoting the relevant voucher numbers.

2. For advances and deposits, ensure that the payment vouchers are posted to the relevant individual accounts in

the advances and deposits ledgers as detailed in FM 23.2 in addition to being entered in the abstracts.

3. At the end of every month, after all postings have been completed in the daily abstracts, post the monthly totals

for each sub-head in the monthly revenue abstracts or monthly expenditure abstracts.

4. The monthly abstracts totals of each sub-head should be posted against the Departmental Vote Revenue &

Expenditure Accounts.

5. Discuss any observation you might have with the appropriate Officials


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C – Vote Book


This audit programme covers the audit of Departmental Vote Revenue/Expenditure

Account books.


To ensure that all entries in the Vote Book reflect accurately the financial

transactions of the Department.

3. Risks

The key risk to the Department of poorly kept vote books is that all accounting

data would be tainted and unfit for use for the preparation of financial statements.

The underlying risks are:

(a) incorrect information is recorded in the vote book, including the vote, details

of approved estimates, re-allocation, supplementary provisions, imprests, etc.

(b) entries in the vote book are not complete or inaccurate, and as a result

commitments and payments may exceed the balance of available funds and

overspending may occur.

(c) the vote book is not promptly and properly reconciled each month with the

Finance Department’s records.


The following records should be requested at the start of the audit:

(a) Vote Book;

(b) Approved Budget Estimates

(c) AISE/ Supplementary estimates;

(d) Payment Vouchers.


6. Audit Programme - Vote Book

For each department conduct the following checks:


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Ref Audit Programme Tasks

1. Use the Budget estimates book and appropriate supplementary allocation provisions to confirm that the Vote

Book pages correctly records the

vote account details,

approved estimates,

supplementary provisions,

imprests and

departmental warrants if any

2. Confirm that a separate page has been opened for each expenditure item under the control of the department

under review.

3. Confirm that the entries are correct for both commitments and payments by checking the Vote Book entries

against payment vouchers

4. Confirm whether any of the votes are overspent.

5. Confirm that every entry in the Vote Book is properly initialled.

6. Confirm that the year to date balances have been calculated accurately by reproving the calculations.

7. Confirm that all Departmental Heads and Subheads have been correctly entered.

8. Confirm that the Vote Book has been properly and promptly reconciled each month with Daily & Monthly

Abstract Ledgers maintained at the Treasury. NB Care should be taken to ensure that the Vote Book is not

being written by merely copying the Finance Department statements.

SECTION II: REVENUES, RECEIPTING & BANKING

A - Federal Government Grants


The audit covers transfer by the Federal Government of funds to the Local

Government as Statutory Allocation.


To ensure that the Local Government accounts for all transfer and that it applies

and accounts for them in the correct manner.

3. Risks

The key risks to the Local Government of poor control over Federal Government

transfer are:

(a) The Inadequate recording and accounting of grants

(b) The late receipt of grants affecting the implementation of planned


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programmes

(c) The incorrect use and application of grants to programmes.



(a) Approved Estimates;

(b) Bank Statements;

(c) Revenue/transfer notifications from the Ministry ie Statutory Allocation Tables.

(d) Daily & Monthly Abstracts of revenue;

(f) Cash Book

5. Estimated Time Budgets

Time Allocated Actual Time Spent Variance Explanation of the variance

6. Audit Programme

Conduct the following checks:


Receipting and Accounting

1. From the Estimates prepare a schedule of expected central government releases.

2. From the Statutory Allocation Table obtain details of amounts released and the dates of those transfers and

compare with 1 above

3. From the appropriate cash book confirm the correct recording of the receipt of funds.

4. From the bank statement confirm receipt of money.

5. From the accounting records confirm the recording of the correct amount

B - Local Revenue Collection

Locally Generated Revenues of a Local Government are derived from taxes, rates,

Licence & fees, commercial undertakings, rent on local government properties and

other miscellaneous revenues.



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This audit covers the general collection of the above revenues, and should be

applied to all specific revenue collection and receipting locations.


To ensure that all revenue due to the Local Government is assessed and

collected; that all revenue is promptly and accurately recorded; and that all

revenue is promptly banked or handed over.

3. Risks

The key risk to the Local Government of poor revenue collection is that under-

collection and/ or under-banking of revenue may mean insufficient funds to

provide the planned level of service delivery, and that inadequate safeguards

exist to prevent fraud, embezzlement and losses.


(a) that there is incorrect accounting and recording of revenues collected,

resulting in the failure to record, or the under recording of revenue due to the

Local Government.

(b) that there is the incorrect or incomplete application of cash receipting and

cashier procedures and controls as required by the Local Governments Financial

Memoranda.

(c) that cash collected, and therefore revenues of the Local Government are at

risk due to poor physical controls over cash and the poor application of controls

as required by the Financial Memoranda.

(d) that revenue received through direct payments to the bank account are not

adequately accounted for and so payees are not properly identified.



(a) Revenue Registers

(b) Revenue Collector’s Cash Book;

(c) Main Cash Book;

(d) Daily Cash and Cheque Summaries

(e) Register of Paying-in books;

(f) Register of Receipt Books;


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(g) Paying-in Books/ Slips

(h) Bank Statements and advices

(i) Cancelled Receipts;

(j) Job Description of Cashier; and

(k) Organogram.

(l) Copies of demand notes

(m) Check stubs

(n) Executive Committee Minute Book

(o) Funds Management Committee Minute Book

(p) Asset Register

(q) Contract Register

(r) DVEA and DVRA (vote books)

5. Estimated Time Budgets

Time Allocated Actual Time Spent Variance Explanation of the variance

6.Audit Programme - Revenue Collection, Receipting and Banking

Conduct the following checks to ensure that the system is being operated in accordance

with the Financial Memoranda


Preparation and Banking of Receipts

1. Ensure that the authentic signature of the Local Government issuing officer is evident on the cover of the

receipt book

2. Confirm that receipts are made out in indelible pencil or blue/ black ballpoint pen

3. For each receipt book, do a 100% validation/matching of receipts issued, to the amounts banked per bank

stamped deposit slip, and to the bank statement, ensuring all amounts receipted have been banked

4. Ensure that the funds have been banked promptly and intact into the correct Bank Account – namely the

Revenue Collection Account

5. Ensure that all amounts per the bank stamped deposit slip are correctly recorded in the Revenue Collectors


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Cash Book

6. Check that the revenue classification in the cash book is correct, ie it accurately reflects the classification

recorded on the receipt

7. Trace the deposit to the main cash book, ensuring correct classification again.

8. For any receipt that has been “cancelled”, ensure all copies of that receipt have been retained

Integrity of Receipt Register

9. From the receipt register, validate the authenticity of the signature of the revenue collector who is signing for

the receipt of the receipt book

10. Meet every revenue collector, ask to see all the current receipt book(s) he is using, record the number

sequence(s), and check that sequence(s) back to the central receipts register [this is to guard against

“unofficial” receipt books being in use.]

11. Carry out a physical inspection of the stock of all unused receipt books on hand, and check the sequences

back to the receipt register, ensuring that the register records the receipts as un-issued.

12. Inspect the Receipts Register, to ensure that all [ non sampled] receipt books have been signed for

Arithmetic Accuracy and Posting

13. Check the casting and balancing of the receipts cashbook,

14. Post the receipt totals to the general ledger

Cash Survey

15. Immediately after test 6 above , conduct a cash count [ covering every revenue collector, and cashier] to

ascertain that the officer is holding the cash for all receipts issued that have not yet been banked

16. Undertake control of all cash and imprest points to guard against switchovers

17. Ensure that the cashier does not have access to ledgers, accounts or write-offs.

18. Confirm that there are satisfactory arrangements in operation to cover any absence of the cashier, including

holidays.

Direct Banking (when used)

19. Ascertain that all Bank Tellers are serially numbered and reflected into the Bank Statements.

20. Collate all Bank Tellers not credited into the account of the Local Government.

21. Check that all revenues credited into the account of the Local Government is recorded in the Revenue Register

and official receipts are raised as appropriate.

Revenue Contractors

22. Where revenues are contracted to Revenue Contractors/Franchised Revenue, Contract agreements and

Executive Committee's approval must be obtained

23. Check the adequacy of revenue returns sent by the revenue consultants.


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24. Check that the percentage of commission paid to the consultant is justifiable (should not cover direct bankings).

25. Ensure that 10% consultancy tax is deducted from all the consultancy fees (commission) paid, adequately

recorded and paid to the revenue service.

26. Confirm that the contracts contain provision for a performance bond in accordance with Local Government

Public Procurement and Disposal of Public Assets Regulations. So also check for the Auditor General’s clause

of right of acess to contracted projects or revenue sites.

C - Contracted Revenue Collection


This audit programme covers the Local Government’s collection of revenue from

contracted sources ie Consultants. These primarily include Markets, Parking

Fees, Motor Park Tolls, Tri-cycle Tolls (Keke Marwa), Public Conveniences, etc


To ensure that all revenue from contracted sources is properly assessed and

collected promptly.

3. Risks

The risk to the Local Government of poor control over assessment and/or

collection of revenue by Consultants is a shortfall, or misappropriation, of funds

meaning that planned activities, funded by these revenues, cannot be completed.


The following records should be requested from the local government at the start

of the audit:

(a) Legal Agreement of Contract;

(b) Council/Contract Committee Minutes;

(c) Evaluation Committee Minutes;

(d) Contract Monitoring Records;

(e) Revenue Registers

(f) Approved Budget Estimates

(g) Franchised revenue records

(h) Bank tellers – paid-in by consultants

(i) Treasury receipts


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6. Audit Programme - Contracted Revenue Collection Ref Audit Programme Tasks

Contracts Assessment and Valuation

For every Revenue Collection contract ensure, through inspection, that a rigorous valuation and assessment of

the potential revenue base and yield was undertaken, at the outset of the contract, and within the last 12

months.

1. Ensure the register / database of related taxpayers is complete & up to date

2. Check that the factors used to calculate yield / occupation rate / average revenue per unit [ie whatever is

applicable for the revenue source concerned], are reasonable and realistic.

3. Ensure that reasonable calculations were carried out of the all the costs involved in the collection of the

revenue

4. Ensure that a realistic “reserve price” was set which provided both the Local Government and the Contractor

with a reasonable return from the asset base [Local Government], and the effort/risk

[Contractor]

5. Confirm that, given all the evidence, the revenue being received from the contract is commercially reasonable

in relation to the value of the function being contracted out.

Contract Content

6. From the contracts prepare a schedule of when payments were due and the amounts due (or basis of

calculation if based on actual revenue collection).

7. Confirm that the contracts contain provision for a performance bond in accordance with Local Government

Public Procurement and Disposal of Public Assets Regulations.

8. Confirm that the contracts can be cancelled immediately in the event of non-payment of amounts due,

9. Confirm that the contract provides for a review of the contract price annually

Contract Performance

10. Examine the Finance Department records for contract performance monitoring and confirm that these are up to

date and fit for purpose.

11. Confirm for all contracts that payments are being made on time and for the amounts expected, [Check the

payment to the cashbook, deposit slip and bank statement]

12. Ascertain that effective legal action has been taken in cases where revenue has not been paid in accordance

with the contract


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13. Confirm that all such cases have been formally communicated to Local Government

D - Capital Receipts


This audit covers capital receipts where applicable.


To ensure that the sale of assets is based on a fair value and that receipts from

the sale of assets are properly received and accounted for.

3. Risks

The key risk to the Local Government is that public assets are not disposed of in

accordance with appropriate legislation, and as a result the corresponding capital

receipt is not received by the Local Government. The underlying risks are:

(a) the failure to properly record and account for capital receipts

(b) capital receipts are understated in the accounts.



(a) Bank deposit slip/ paying in book

(b) Bank Statements

(c) Local Government Minutes and Approvals

(d) Board of Survey Report


6. Audit Programme - Capital Receipts Ref Audit Programme Tasks

Assessment

1. Check that assets sold have been disposed of in accordance with the Public

Procurement and Disposal of Fixed Assets Regulations.

2. Ensure that a minimum reserve price was assessed and set.

3. Ensure the disposal was advertised


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4. Ensure bids were fairly assessed.

5. Ensure the award went to the highest bidder

Invoicing/ Receipting

6. Ensure that the agreed sale price was correctly invoiced to the purchaser.

Payment

7. Confirm that payment has been received and banked in full .

8. Confirm that the transaction is correctly recorded in the ledger,

9. Confirm the amount was correctly minuted

Asset Register

10. Ensure the disposal has been properly recorded in the asset register

SECTION III: PAYMENTS

A: Salaries & Allowances


This audit covers all aspects of salaries and allowances including appointment,

salary levels; gross pay and deductions.


To ensure that approved procedures are followed; that the payments made are

correct and in accordance with agreed scales; that records maintained are

adequate and accurate; and that proper security is exercised over custody and

payout of cash or cheques.

3. Risks

The key risk to the Local Government of poor control over payroll is that “ghost

employees” may exist resulting in the overpayment on the salaries accounts.


(a) salary payments may not have supporting documents and not be properly

authorised.

(b) the Local Governments Financial Memoranda may have been flouted when

recording, paying and reporting salary details.


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(c) the incorrect salary may have been calculated and the wrong persons may

have been paid.

(d) the payments may have been incorrectly posted in the cashbook and the

ledgers and that the wrong accounts heads may have been used.



(a) Personal Emolument Register;

(b) Approved Salary Structure;

(c) Staff Records/List;

(d) Pay Record Cards;

(e) Timekeeping Register (signing in book);

(f) Overtime Register;

(g) Advances Register;

(h) Sickness Records;

(i) Leave Records;

(j) Training Records and

(K) Net pay book



Payroll Payments

1. Cross-check 100% the payroll payments against the PE Register, checking that all amounts tally

2. From the Approved Salary Structure confirm that all posts are paid at the correct salary grades and at the

correct rate of pay and ensure a coverage of at least 25%

3. Review the deductions to ensure they are reasonable. Investigate any unusually large deductions and obtain

justification

4. For any significant supplementary advances /allowances , inspect [and note] the relevant authority to make


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such payment, and check the amount is entered in the advances register

5. Check 100% of net amounts per the payroll to actual amounts withdrawn form the Bank

6. Check the casting on the summary sheet to ensure the total is correct.

7. Check the total amount withdrawn on salary has been reflected on the bank statement

8. Carry out a review of the gross monthly payroll amount and investigate significant fluctuations, validating the

reasons given.

Payroll Deductions

9. Check the casting of the deduction columns on the payroll, to ensure the total is correct

10. Ensure that the total amounts have been paid to the respective creditors [PAYE, NUT etc] ie check that the

payment is reflected in the cash book and bank statement.

11. For recovery of advances, ensure the recovery has been entered into the advances register.

Payroll Records

12. For each selected employee per 2 above, verify their existence, by various approved means.

13. Confirm that the salary grade contained in each person’s staff record file is the same as that

on the PE Register.

14. Confirm that a permanent record is kept of all service of every individual for pension and redundancy

purposes.

15. Ascertain which members of staff have left in past 12 months and check that the PE register and Payroll have

been updated.

16. Confirm that new staff are entered in the Payroll in the right period,grade and amounts

B - Non-Wage Payments: Other Overheads


The audit covers the entire payment process covering Requisitions,

Authorisations, Local Purchase orders, Receipt of Goods/services, Cheque and

Cash Payments, Recording and allocation of expenditure and Posting to books of

accounts.


To ensure that all payments made in respect of Non-Wage Expenditure are

within relevant budgets and that this expenditure has been properly incurred and

approved in accordance with specified procedures.

3. Risks


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The key risk to the Local Government of poor expenditure controls is that goods

or services could be paid for which were not ordered or received or of adequate

quality, and that expenditure was incurred without due regard to economy,

efficiency and effectiveness.


(a) payment vouchers may not have supporting documents and were not

properly authorised.

(b) the Local Governments Financial Memoranda may have been flouted when

ordering for goods and services

(c) budget allocations may not have existed for the payment made.

(d) the wrong persons may have been paid.

(e) the payments may have been incorrectly posted in the cashbook and the

ledgers and that the wrong accounts head may have been used.

(f) Paying a wrong amount.



(a) Cash Book;

(b) Requisitions;

(c) Local Purchase Orders File;

(d) Store Received Voucher File

(e) Vote Book;

(f) Accounting, Stores and Fixed Asset Records;

(g) Payment Voucher File;

(h) Approved Signatories List;

(i) List of approved contractors and suppliers

(j) Minutes of Funds Management Committee



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1. Locate the payment voucher and ensure that it has been properly completed and authorized by officers with

appropriate authority.

2. Ensure that where applicable the payment voucher is supported by:

(a) a requisition for goods or services from the user department

(b) a copy of the LPO

(c) a delivery note from the supplier

(d) a store receipt voucher from stores

(e) a suppliers invoice

(f) appropriate Authorisation

3. Inspect the purchase requisition, LPO and SRV and ensure that each have been fully completed and signed by

the correct officers of appropriate authority.

4. Where applicable inspect evidence that all key aspects of the procurement process have been properly carried

out and that due process has been followed.

5. Inspect the suppliers invoice and ensure that:

(a) the payment checking stamp has been fully completed by the appropriate offices

(b) the details of goods and services thereon match all the supporting documentation

(requisition, LPO, SRV etc.).

(c) all calculations and arithmetic are correct

(d) the price is in accordance with approved price lists/ quotations

6. Confirm that the expenditure has been charged to the correct head/ sub head.

7. Confirm that the LPO and the payment have been properly recorded in the respective vote book and that

budget availability existed at the time of incurring commitment for the Expenditure

8. Ensure the payment instruction has been recorded in the Payments Register

9. Trace the payment and its classification into the Abstracts Ledger

10. Add up the Abstracts Ledger and check the postings of the totals into the General Ledger.

11. Where applicable check that stores purchases are correctly recorded in stores records by checking from the

SRV to the stores record.

12. Where applicable check that fixed assets are correctly recorded in fixed asset register by checking from the

SRV to the Fixed Asset Register.


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C – Stores Verification


This audit covers the audit of the items of stores in the Local Government.


To ensure that all stores have been recorded and are properly classified,

described and recorded.

3. Risks

The key risks to the Local Government is that store items may not be properly

recorded in the store ledgers and that stores may be misappropriated.


(a) failure to comply with procedures and regulations governing stores

(b) that there is poor control over the use and allocation of stores

(c) that excessive costs are incurred and/ or loss is incurred by the Local

Government.

(d) that security documents are misappropriated and revenue is lost by the local

government.



(a) Stores Ledger/ record

(b) Stock Accounting Records/ Cards;

(c) Store Receipt Vouchers (SRV);

(d) Store Issue Vouchers (SIV);


6. Audit Programme – Stores Ref Audit Programme Tasks

Security


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1. Confirm that when you arrived at the stores, you were asked to show your identification prior to access.

2. Confirm that there is a controlled access point into the stores.

3. Confirm that the premises seem secured against intruders.

4. Can storekeepers observe all exits? If not, is any improvement possible?

5. List the key-holders.

6. Confirm that the storekeeper is the only person allowed to receive and issue stores.

7. Check that all details were correctly and promptly entered onto the store records

8. Carry out a physical stock verification and investigate any missing items /discrepancies

Issues

9. From the Stores Issues Voucher (SIV) select all previous issues made and test as follows:

10. Check the details on the issue note to the requisition note, which must be prepared by persons who are not

storekeepers.

11. Check that all details were correctly and promptly entered onto the stock records.

12. Select at least 50% by number of the stock cards and physically count the stock, comparing the count amount

to the balance on the card. Note all differences, [including the unit cost of the item].

13. Request storekeepers to explain the discrepancy and investigate the authenticity of their explanation.

Receipts

14. Storekeeper issues stores receipt vouchers for all receipts

15. Storekeeper updates relevant bin cards for all receipts

16. All stores receipt vouchers are recorded in the stores ledger by the accountant

Security Stores (covering official receipts etc)

17. All printing of security vouchers/receipts is properly authorised

18. All official receipts etc are pre-numbered and the continuity is checked

19. Storekeeper issues a stores receipt voucher for all receipts

20. All issues are checked back to ensure that they are all accounted for

D - Payment of Capital Projects


This audit programme covers contract of a capital nature such as constructions

and electrification works and services.


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To ensure that all contracts (written or implied) are properly authorised, entered

into relevant records and that they are correctly implemented.

3. Risks

The risk to the Local Government of poor control over contracts is work may be

paid for which were not executed or if executed, they were not done with due

regard to economy, efficiency and effectiveness and that contract execution did

not deliver the quality or benefits expected.



(a) Estimates;

(b) Vote Book;

(c) Capital Expenditure Register;

(d) Copies of Agreements;

(e) Certificates of Completion;

(f) Council Extracts

(h) Payment Certificates / Certificates of Work Done

(i) Contract register

(j) Tender Board minutes

(k) Executive Committee Minute Book

(l) Official approval of the Governor or Ministry of Local Government as

necessary



Tendering


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1. Obtain the contract file, and through inspection of the Due Process Committee minutes and other documents

confirm that regulations were complied with regarding, the following requirements:

The preparation and approval of specifications or Terms of Reference

Advertising the tender, or short-listing of suppliers/ contractors

Receipt, storage and opening the tender bids.

Technical evaluation of bids

Evaluation of financial proposals

The contract negotiation, finalisation and award

Contract execution and payment

2. Inspect evidence of adequate contract monitoring and supervision by the LG

3. Confirm the contract has been recorded in the Capital Expenditure Register

4. Confirm all payments are supported by an authentic progress payment certificate, prepared by the contract

specified technical supervisor and fall within the payments schedule of the contract

5. Confirm the payment is supported by a receipt

6. Ensure Progress payments reflect the deduction, where appropriate, of retention fees.

7. Confirm the expenditure has been correctly allocated, and is recorded in the vote book

Contract Completion

8. Confirm that a project completion certificate has been completed by the technical supervisor

9. Where applicable inspect the project either on-going, completed or abandoned, and interview the users of the

output. If possible, take pictures as evidences of verifications. Make an informed judgment [acknowledging

technical limitations] as to whether the project appear to be “fit for purpose [FFP]”. If FFP appears

questionable, escalate the matter through appropriate channels and call for an independent technical

inspection.

Fixed Asset Record

10. Where the contract has given rise to the acquisition or construction of an asset(s), check that all details of the

asset(s) have been fully recorded in the fixed assets register

Leasing of Fixed Assets

11. Confirm written leasing agreement for all leased assets

12. Confirm contracts kept securely

13. Confirm conditions of the lease contract are complied with.

14. Confirm payments are made promptly in line with the lease agreement

E - Advances and Allowances



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This audit programme covers the audit of personal advances and administrative

advances to the Local Government’s staff to facilitate operations of the Local

Government.


To ensure that all personal and administrative advance accounts are properly

managed and accounted for, and all allowances paid are approved and in

accordance with specified rates.

3. Risks

The key risk to the Local Government is of poor control over advances and

allowances resulting in advances not being properly recorded, retired and

accounted for. This could lead to misappropriation and/or improper use of Local

Government Funds. The underlying risk is that money advanced may not be

properly accounted for or fully recovered by the Local Government.



(a) Advance register;

(b) Cash Book;

(c) Payment Vouchers for advances;

(d) Advance Account Ledger;



1. From the payment vouchers, ensure that all pertinent details of the advance are recorded in the respective

advances register.

2. All Advances

Confirm that:

a the granting of advance has been authorised by the Chief Accounting Officer .

b the officer to whom the advance was made did not have any other outstanding / unaccounted advance

c the amount advanced agrees with the authorisation and the payment voucher, and that the payment voucher

effectively constitutes an “acknowledgement of debt”


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3. Administrative Advances/Seminar/Conferences/Workshops

a Confirm that a full accountability return was submitted (retired) when the purpose for opening the advance

has been accomplished.

b Scrutinise the return in detail to ensure that all elements of the accountability are in order, and vouch the

expenditure to valid supporting documentation e.g.

i) Signed receipt of allowances schedules which must be matched to signed schedules of attendance registers,

ensuring the rates for allowances are in accordance with approved rates

ii) Authentic invoices for the supply of accountable services or goods [ hotel or fuel invoices, etc]

iii) Determine whether there was, or should have been, a balance left over [ this should usually be the case],

and verify that this sum was returned, receipted, and accounted for.

c Report on the total amount vouched in the entire sample , and the total amount and the percentage returned,

and seek justification where the amount returned is unrealistically low.

d Check the accounting of the return to the related journal, confirming that the correct account head has been

charged.

4. Personal Advances

a Check that recoveries are being made according to schedule, and recovery is not overdue

b For all recoveries reflected, check the evidence that the amount concerned was actually received or

deducted from salary.

c Where an officer has transferred between departments, check that the advance record has been properly

transferred to ensure accountability or recovery.

d Where an officer has resigned, retired or dismissed, check that the outstanding advance balance has been

fully recovered.

e Check that the previous years balance has been correctly brought into account for this year.

f Agree the balances on individual accounts with the individual’s concerned.

F - Imprests


This audit covers the issue and retirement of Imprest accounts.


To ensure that all imprest accounts are properly managed and accounted for.

3. Risks

The risk to the Local Government is that poor control over the issue and

management of imprest accounts may result in their improper use, including

misappropriation, and subsequent inaccurate or incomplete retirement.


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(a) Standing Imprest Record/Schedule of Imprest Warrant

(b) Cash Book, Vouchers;

(c) Special Imprest Records;

(d) Accounting Records (retired imprests);


6. Audit Programme – Imprests Ref Audit Programme Tasks

1. Obtain details of all outstanding imprest balances held by the imprest holders and confirm that:

(a) the Financial Memoranda has been followed in respect of the imprests.

(b) that the cash book for the imprest has been properly maintained and reflects all the payment vouchers, and

can be reconciled to the balance of cash.

(c) Count the cash on hand and agree it to the imprest accounting record.

2. For the retired imprests confirm that:

(a) the Financial Memoranda has been followed in respect of the imprests.

(b) that the imprests selected have been fully retired with adequate supporting

documentation for sums expended.

(c) check that the expenditure has been allocated the correct head/sub-head classification.

(d) check the posting of expenditure to the general ledger

(e) check that the imprest was sufficient, and not excessive to meet its purpose. (It should be just large enough

to cover the period of transactions plus allow time for reimbursement to take place, and not be retired with an

excessive balance)

SECTION IV: ASSETS, INVESTMENTS, CASH & BANK BALANCES, LOANS &

BORROWINGS, RESERVES

A - ASSETS


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This audit programme covers the audit of the Council’s fixed assets including its

(a) Non Produced Assets [Land]

(b) Buildings,

(c) Roads & Bridges

(d) Transport Equipment

(e) Machinery & Equipment

(f) Furniture & Fixtures,

The programme incorporates additions disposals, the calculation of depreciation,

title/ownership, physical inspection, as well as the operations and usage of

assets


To ensure that the Council operates adequate management over all categories of

fixed assets, including their acquisition, day to day operation, maintenance and

disposal.

3. Risks

The key risk to the Council is that fixed assets acquired by the Council are not

properly recorded in the Council’s books of account, and that assets may be sold

to or utilised by third parties without due and valid approval, and that the value

received may be misappropriated.


(a) failure to comply with procedures and regulation for the procurement, and

disposal of land and building

(b) that there is poor control over the day to day costs of operating and

maintaining assets,

(c) assets are not properly maintained so that they are fit for the purpose

intended

(d) that there is poor control over the use and allocation of assets

(e) that excessive costs are incurred and/ or revenue is lost by the Council.



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The following records are required for the audit:

(a) Asset register

(b) Title deeds, and registration documents

(c) Council policy for the acquisition, hire, lease and disposal of assets ;

(d) Cash Book

(e) Payment Vouchers

(f) Hire/ lease documents

(g) Ledger Accounts for fixed assets


6. Audit Programme - Fixed and Non Produced Assets Ref Audit Programme Tasks

Acquisition of Assets

1. Confirm that:

(a) due process has been followed and vouch the expenditure accordingly.

(b) the Council’s acquiring/hiring/leasing policies have been followed

(c) the Asset is recorded in the Asset Register

2. Vouch the asset cost reflected in the ledger back to the payment voucher.

3. For acquisitions ensure that the appropriate asset registers have been updated correctly with:

(a) asset details

(b) asset costs

(c) acquisition and ownership details

(d) appropriate depreciation/amortisation charge where applicable

4. Obtain and review a schedule of the asset balances per the fixed assets register, add it up, and ensure it

balances, or has been formally reconciled with the related account. Investigate discrepancies.

5. Verify the existence of the assets on the register by physical inspection. [Simultaneously note the physical

condition of the asset]

6. Establish existence/ ownership of legitimate title deeds, registration books etc in Local Government Name.


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Maintenance

7. Confirm that the Local Government has in place a policy for the repair and maintenance of the assets. Where

applicable ensure that the policy is based on time and usage of the asset [ eg vehicles, equipment etc]. Confirm

that asset registers/ records/ job cards record the usage and maintenance costs for the individual assets.

8. Review the maintenance costs and charges made to the ledger accounts for the selected assets for

reasonableness.

9. For any assets noted as being in unsatisfactory state of repair, determine whether a maintenance budget exists.

If not discuss the matter with the Chief Accounting Officer, and determine what action must be taken

Operations and Usage – General

10. Confirm that assets are being used for the appropriate task, (i.e. for Local Government operations and revenue

generating activities. Investigate assets not being used for such activities).

11. Confirm that adequate security arrangements exist for the storage and custody of assets [particularly vehicles

and plant and equipment] such that it is unlikely assets can go missing, or be utilised for “ private contracts”

12. Confirm that there is a system for recording all expenditure and costs relating to individual vehicles, as well as in

total

B - Investments


This audit covers the audit of the item of investments on the Local Government’s

balance sheet.


To ensure that all investments have been recorded at the period end and that

amounts in the balance sheet are stated on a consistent basis and are properly

classified and described.

3. Risks

The key risk to the Local Government is that the investments of the Local

Government are not properly recorded in the Local Governments books of

account and balance sheet, and that investment may be sold to or utilised by

third parties without due and valid approval, and the disposal value or interest

received may be misappropriated.


(a) failure to comply with procedures and regulations governing investments

(b) that there is poor control over monitoring the value of the investment, as well

as its returns, and any “retain / or sell” decisions


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(c) weak understanding of the risks involved in holding an investment

[possibilities of losses]

(d) that excessive costs are incurred and/ or revenue is lost by the Local

Government

(e) lack of proper custody of certificates and title.



• Investment Register

• Accounting Records;

• Bank Statements

• Investment certificates

• Interest notices

• Local Government Investment Policy.

• Minutes of council.



1. From the investment register ensure, through inspection that investment certificates [ or other evidence of title]

are held in the name of the Local Government for all recorded investments.

2. Confirm that income has been received for all investments, and verify the receipt of interest to the bank

statement and investment register.

3. For new investments, confirm the payment per the cash book and the investment register to the investment

certificate.

4. Confirm that investments are subject to annual valuation, and that appropriate appreciation or depreciation

entries are recorded in the investment account and the reserve account.

5. Confirm that proceeds from the sale of investments are properly recorded in the investment register, investment

account and shown in the bank statement.

6. Ensure that Local Government has approved and minuted all acquisitions or disposals,


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C - Cash and Bank Balances


This audit programme covers the audit of the key aspects of Treasury

Management: cash and bank balances. It covers both the operation of cash

book[s] and bank accounts during the course of the year, as well as balances at

the year end.


To ensure that all bank accounts are properly authorised and that cash books are

properly maintained and reconciled to the Bank Statement on a regular basis.

3. Risks

The risks to the Local Government of poor control over cash and bank balances

are that funds may not be properly controlled, and are therefore subject to

misuse or loss.



(a) Details of all bank accounts;

(b) Certificates of Bank balances;

(c) Correspondences with the Banks

(d) Financial Regulations (Banking Instructions);

(e) Cheque Books/Bank instructions records;

(f) Bank Reconciliations.

(g) Cash Book.


6. Audit Programme - Cash and Bank Balances Ref Audit Programme Tasks

SYSTEM & COMPLIANCE TESTS

Bank Accounts

1. Obtain details of all bank accounts with full titles, account numbers and authorised signatories.


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2. Authenticate this list by requesting the Bank(s) concerned to confirm in writing all accounts in operation [and

any dormant].

3. Confirm that the number and nature of bank accounts conforms to those records in the LG

4. Obtain a copy of the contract and correspondence with the Local Government’s bankers ,and confirm that the

Local Government has taken appropriate steps to negotiate favourable conditions of service, and favourable

bank charge rates.

Cheque Control

5. Confirm that cheques are stored in safe custody and subject to control via a cheque register, which covers the

operation of all bank accounts.

6. Review the payment register and confirm that all cheques/payment instructions are issued to approved and

identifiable personnel and acknowledged in writing. Authenticate the signature

7. Confirm that the stock balance of cheques is verified at least monthly

8. From the payment register, select one used cheque book/payment instructions for every bank account, obtain

the cheque book and the returned cheques from the bank [ if available], and account for the entire sequence of

cheques in the related cash book

9. Inspect the returned cheque to confirm that are “open” cheques are never used, and all cheques have been

signed by the stipulated number of designated signatories.

10. If any cheques are spoiled or cancelled inspect the cheque to ensure it has been properly cancelled.

11. Confirm that cheques returned as “unpaid” have been cancelled, and a new cheque issued, and the payment

voucher annotated [ and approved] accordingly.

Reconciliation of Cash Books with Bank Statements

12. Confirm that the person(s) responsible for bank reconciliations are independent of the preparation and

despatch of cheques/payment instructions and they initial and date the bank reconciliations

13. Confirm that bank reconciliations are made monthly and/or every time a bank statement is received.

14. For each bank account check one bank reconciliation as follows:

(a) Verify the arithmetic accuracy of the reconciliation

(b) Verify the “cash book balance” and the “bank statement balance” with their respective sources

(c) Verify standing orders and bank charges have been identified and recorded in the cash book

(d) Check that the adjusted cash book figure is used in the relevant financial statements

(e) Trace all outstanding cheques and direct bank deposits through to the bank statement in the next

accounting period and verify their validity (check that all cheques older than six months are written back)

(f) Scan the cashbook/bank statements for any unusual items (e.g. contra entries, dishonoured cheques) and

investigate

(g) For any cheques that are still outstanding:


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i) examine the nature of the item not cleared;

ii) examine the supporting documentation and authorisations to determine whether they were of a routine

nature.

15. Obtain direct confirmation of account balances from the bank and compare these with the cash book balances

16. Check the arithmetical accuracy of all cash book balances

17. Check that the Council Treasurer checks each bank reconciliation and initials and dates it as evidence of this

18. Examine security arrangements and adequacy of insurance cover, including for cash in transit

YEAR END BALANCES

19. Confirm that full bank reconciliations have been prepared for all bank accounts, and scrutinize reconciliations

for reasonableness. Obtain explanations for unusual reconciling items, and validate as necessary

D – LIABILITIES: Trade Creditors and Accruals


Creditors relate to invoices received by the Local Government that are still to be

paid in respect of goods, works and services supplied and expenses applicable

to the current year for which payments are pending.


To ensure that all creditors and accruals have been correctly recorded at the

period end and that amounts in the balance sheet are stated on a consistent

basis and are properly classified and described.

3. Risks

The key risk to the Local Government is that creditors and accruals may be

misstated. This would mean that the Local Government has not recorded all the

expenditure it has incurred and that the financial position is misstated.


(a) the recorded creditors may not represent all the amounts due to third parties

at the period end

(b) Accruals and provisions may not be accurately stated and not valued

according to sound accounting principles


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(c) The recorded creditors and accruals may not be attributable to the Local

Government.



(a) Accounting Records;

(b) Schedule of Trade Creditors and accruals

(c) Liability register

(d) Unpaid invoices;

(e) Annual Accounts.


6. Audit Programme - Trade Creditors and Accruals Ref Audit Programme Tasks

Trade Creditors

1. Obtain a schedule of creditors as at the end of the year.

2. Confirm that the schedule adds up correctly.

3. Confirm that the schedule totals agree with those in the creditors control account. If not ensure that a valid

reconciliation has been prepared.

4. Confirm that all the creditors balances on the schedule agree on or with the creditor’s

statement (or a valid reconciliation).

5. Vouch or verify any material reconciling items

6. For the items/ amounts selected from the liability register, check to ensure that the item/amount appears

on the creditors list. If it does not, check to ensure that the goods or services were received after the

period end

7. Compare this years schedule with that of the previous year/ period. If major creditors appear on last year/

period list that are absent this year/ period ensure that there are valid reasons and that there is no

omission.

8. Scrutinise the vote book and check the last payment entries before the end of the year

Non-trade Creditors and Accrued Liabilities

9. Confirm that the basis for accrued liabilities is consistent with previous years from the Local Government’s


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Accounting Policies statement.

10. Confirm, by re-performance, that the accrued liabilities calculations are correct.

Provisions

11. Obtain from the accounting records, a schedule of provisions.

(a) confirm that the basis for provisions is consistent with previous years from the Local Government’s

Accounting Policies statement

(b) confirm, by re-performance, that the provision calculations are correct

12. Confirm that any disclosures of material provisions have been made in the final accounts.

13. Ensure that any commitments in the liability register, which are not included in Creditors, appear as a note

in the financial statements.

E - Loans / Borrowings


Loans may be raised and received by the Local Government to fund capital and

development works. The terms of loans should include repayment of interest and

principal. These terms must be complied with and the use of the application of

the loan confirmed to ensure it has been used for the purpose for which it was

intended.


To ensure that all loans have been recorded correctly in the balance sheet and

have been raised in compliance with the relevant Laws.

3. Risks

The key risk to the Local Government is that loans have not been recorded

properly and the financial position is misstated. The underlying risks are:

(a) the loan balances do not represent all the loan amounts due to third parties at

the period end

(b) that loan receipts have not been applied for the purpose(s) intended, and

(c) The Local Government may not have complied with all regulations regarding

the raising and repayment of Loans.




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(a) Accounting Records;

(b) Loans Register

(c) Loans Ledger

(d) Loan Agreement;

(e) Annual Accounts.

(f) Minutes of council.


6. Audit Programme - Loans / Borrowings Ref Audit Programme Tasks

1. Verify that the procedure for obtaining the selected loans was in accordance with the provisions of the Law.

2. Review the minutes of the Local Government to ensure that the loan was properly Authorized

3. Review the usage of the loan to ensure that it was used for the purpose for which it was obtained

4. Review the terms of the loan and verify compliance with them

5. Confirm that all interest and principal due on the loan has been paid or Accrued

6. Confirm the loan balance to an official statement provided by the lender, or validate any reconciling item.

In particular ensure that any “repayment” reflected on the Local Government’s record, is reflected on the

Lenders statement.

7. Confirm that a loan progress report is prepared by the Head of Finance


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F - Reserves


This audit covers the movements and the closing balances on all Capital and

Revenue Reserves.


To ensure that Capital and Revenue Reserves have been correctly reconciled

and accounted for in accordance with stipulated accounting policies.

3. Risks

The key risk to the Local Government is that the reserves are misstated, and that

the financial statements therefore misrepresent the financial position of the Local

Government as reflected on its balance sheet.



(a) Local Government Policy for Reserves

(b) Schedule showing the movement on Reserves between the opening and

closing balances.


6. Audit Programme – Reserves Ref Audit Programme Tasks

Accumulated Fund

1. Ensure that the Accumulated Fund is properly reconciled, and comprises the Balance

2. Brought Forward from previous year, plus / minus the surplus / deficit of revenue over expenditure

All Other Capital & Revenue Reserves.

3. Investigate all other movements on any Reserve Account, obtain explanations for the increase or

decrease, and ascertain what the closing balance represents [ ie what is the debit transaction that gave

rise to the Reserve ] Authenticate all significant movements, and the amount, by reference to supporting

evidence, e.g. a capital reserve arising from a revaluation of fixed assets, should be supported by the

valuers report.


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SECTION V: Review of Financial Statements


This covers the review of the operation and management of the accounting

systems and the preparation of financial statements


a. To confirm that the accounting systems, records and preparation of financial

statements are in accordance with the Standardized Format of Federal, States

and Local Government Financial Statements.

b. To confirm that the accounting system produces accurate, reliable, and

complete reports and that the financial statements are prepared in accordance

with the Standardized Format.

3. Risks

The key risk to the Local Government is non-compliance with accounting

requirements, controls and procedures resulting in the failure to meet

standardized reporting requirements.


(a) the incorrect application, and inconsistency in applying accounting policies

and principles

(b) the incorrect posting of accounting transactions

(c) the production of incorrect or incomplete Financial Statements

(d) The financial statements are not presented in an acceptable format.



(a) Daily and Monthly Abstracts of Revenue & Expenditure

(b) Advance & Deposit Ledgers

(c) Investment Register

(d) Main Cashbook

(e) Bank Reconciliation Statements & Certificates

(f) DVEA and DVRA

(g) Payment slips


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(h) Payment Vouchers (PVs)

(i) Annual local government budget


6. Audit Programme - Review of Financial Statements Ref Audit Programme Tasks

1. Check that all ledgers and the below-the-line accounts are posted, up-to-date and balanced on a monthly

basis, and at the year end.

2. Check the balances carried forward from last year’s ledger, to the balance brought forward in this year’s ledger

3. For the latest month, obtain the trial balance, and check the arithmetical accuracy of the totals

4. Check all the trial balance figures back to the respective general ledger totals

5. Select sufficient general ledger accounts that make up 80% by value of the total trial balance, and check the

arithmetic accuracy of the total amount in the general ledger.

6. From this validated trial balance, re-perform the preparation of the financial statements

7. Confirm that the financial statements are produced in the format required by the Accounting Manual, and that

they disclose all the information required

8. Confirm through inspection, that complete financial statements have been prepared at the end of every month

and year

9. Check that the financial statements are sent to the Office of the Auditor General for Local Governments each

month

10. Ensure the annual financial statements are submitted for audit within three months (31 March)


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Chapter 5

Working Papers And Audit Evidence


3.5 Audit Evidence

Competent, relevant and reasonable evidence should be obtained to support the auditor's

judgement and conclusions regarding the organisation, program, activity or function under audit.

The following paragraphs explain audit evidence as an auditing standard.

3.5.2 The audit findings, conclusions and recommendations must be based on evidence. Since

auditors seldom have the opportunity of considering all information about the audited entity, it is

crucial that the data collection and sampling techniques are carefully chosen. When computer-

based system data are an important part of the audit and the data reliability is crucial to

accomplishing the audit objective, auditors need to satisfy themselves that the data are reliable

and relevant.

3.5.3 Auditors should have a sound understanding of techniques and procedures such as

inspection, observation, enquiry and confirmation, to collect audit evidence. The SAI should

ensure that the techniques employed are sufficient to reasonably detect all quantitatively

material errors and irregularities.

3.5.4 In choosing approaches and procedures, consideration should be given to the quality of

evidence, i.e., the evidence should be competent, relevant and reasonable.

3.5.5 Auditors should adequately document the audit evidence in working papers, including the

basis and extent of the planning, work performed and the findings of the audit.


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3.5.6 Adequate documentation is important for several reasons. It will:

(a) confirm and support the auditor's opinions and reports;

(b) increase the efficiency and effectiveness of the audit;

(c) serve as a source of information for preparing reports or answering any enquiries from the

audited entity or from any other party

(d) serve as evidence of the auditor's compliance with Auditing Standards;

(e) facilitate planning and supervision;

(f) help the auditor's professional development;

(g) help to ensure that delegated work has been satisfactorily performed; and

(h) provide evidence of work done for future reference.

3.5.7 The auditor should bear in mind that the content and arrangement of the working papers

reflect the degree of the auditor's proficiency, experience and knowledge. Working papers

should be sufficiently complete and detailed to enable an experienced auditor having no

previous connection with the audit subsequently to ascertain from them what work was

performed to support the conclusions.



All auditors should maintain adequate working papers to provide evidence of their work and the audit findings

All working papers should be carefully reviewed by the Team Leader and the Zonal Coordinator

The Permanent and Current Files should be carefully maintained and include all working papers

Adequate audit evidence should be collected and documented in the working papers to justify all conclusions and opinions in the audit report

The Permanent and Current Files provide key evidence for reporting to the Public Accounts Committee (Local).

5.2 Working Papers and Files

Working papers should provide the essential evidence on which any audit report is based. They

must be produced professionally and in accordance with INTOSAI Standards. The term ‘working


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papers' covers all the schedules, analyses and documents prepared and gathered during the

audit.

Working papers should fulfil the following objectives:

record the work done and evidence gathered

provide details of problems encountered

demonstrate a methodical approach

support the conclusions and recommendations of the audit report

facilitate the supervision and reviews of the file by the Team Leader and the Zonal Coordinator

create background and reference material for future audits

facilitate discussion with local government officials.

Working papers should also be:

Legible

Clear

Concise, but with sufficient detail

Objective

Numbered, dated and signed by the originating auditor

Referenced back to source.

The papers should be filed in accordance with the standard current audit file index. That index

should be placed on the front of the file. All working papers must be signed and dated by the

auditor who has prepared them.

Schedules, which support the audit opinion, should have the following information as a

minimum:

Initials of the person preparing and date

Objective of test and cross-reference to audit guide

Basis of a sample selection

The transactions selected


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Evidence of work done

Results

Conclusion in relation to the objectives.

Audit schedules must be prepared in ink. All review notes must be filed and must be properly

cleared. The clearance of the review notes requires written answers together with the initials

and the date against each point at the time of clearance.

Before the file is made available to the Team Leader or the Zonal Coordinator for their review, a

schedule must be prepared detailing the points to be brought to their attention. The purposes of

such a schedule are as follows:

To concentrate the mind of the person preparing it on the overall objective of the audit

To give in one document, a complete summary of the local government's development and financial results for the period

To summarise all significant matters arising from the audit

To make sure the reviewer is aware of all material matters pertaining to a local government without having to read various sections of the file.

Working papers should not contain:

Gratuitous comments

Jargon, buzzwords or unexplained abbreviations; speculation, unsupported or anecdotal evidence

Extraneous material.

Auditors should record in their working papers their reasoning on all significant matters, which

require the exercise of judgment and their conclusion thereon.

All working papers covering audit tests must state:

The objective of the test

The nature of the test

The method of sampling used

The size of the sample compared to the total of transactions from which it is chosen the conclusion drawn from the test

Any/all suggestions for formal recommendations.


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To aid the review and the reporting processes, points arising from the audit should be

summarised. The summary can be used at the Exit Meeting and enables the auditor to:

Evidence that all objectives have been met

Form an opinion on the area under review

Demonstrate that findings have been raised with the relevant levels of client management

Clarify the accuracy and implications of audit findings

Support the audit report and recommendations.

The audit working papers must be sufficiently complete that they stand on their own and do not

need to be supported by any additional oral explanations. It is the responsibility of each member

of the audit staff to ensure that the area he/she has been responsible for is complete and that

the Team Leader and Zonal Coordinator will be able to ascertain what work has been carried

out and the reasons for the conclusions reached.

Reaching Conclusion from Working Papers

Audit working papers should always be sufficiently complete and detailed to enable an

experienced auditor with no previous connection with the audit subsequently to ascertain from

them what work was performed to support the conclusions reached.

Audit working papers should be prepared as the audit proceeds so that details and problems

are not omitted.

5.3 Review of Working Papers

The most important elements in the control of an audit are the direction and supervision of staff

and review of the work they have done based on documentary evidence. Procedures are

designed to ensure the following:

Work is allocated to audit staffs that have appropriate training, experience and proficiency

Audit staffs of all levels clearly understand their responsibilities and the objectives of the procedures, which they are expected to perform. Audit staffs are informed of any matters identified during the planning stage that may affect the nature or the extent of timing of the procedures they are to perform. They are required to bring to the attention of the Zonal Coordinator, any significant accounting or auditing problems that they encounter

The working papers provide an adequate record of the work that has been carried out and the conclusions that have been reached.


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More senior persons within the audit team review the work performed by each member of the

audit staff. This is necessary to ensure that the work was adequately performed and to confirm

that the results obtained support the audit conclusions, which have been reached.

The purpose of the review of working papers is to ensure that:

Planned work (as detailed on the Audit Planning Sheet) has been completed

The work done is properly recorded

The work was adequately performed

Correct conclusions have been drawn.

It is important, therefore, that the papers and the conclusions drawn from the work done are

subject to review by persons of greater seniority and experience than those carrying out the

work.

Team Leader's Review

The review by the Team Leader should normally be carried out at the premises of the local

government and before the audit team leaves.

The review should include the examination of all audit working papers to ensure that the

conclusions reached are consistent with the audit objectives, and that all audit work is fully

documented.

As well as signing and dating each working paper that has been prepared, the Team Leader

should sign and date each audit working paper not prepared by him/her at the top right hand

corner of the page (or any other part of the working paper designated for that purpose) to

evidence their review. '

The review should also include an examination of the permanent file to ensure it contains all

necessary reference data applicable to the local government's operations and that this data is

fully up to date.

Any points or queries that the Team Leader raises in her/his review should be recorded,

discussed with the relevant auditor to resolve. It is the responsibility of the Team Leader to be

satisfied that every point that has been raised has been resolved or noted for follow up by the

Zonal Coordinator.

The Zonal Coordinator's Review

The Zonal Coordinator must carry out a detailed and rigorous examination of the audit file.

The Coordinator reviews the detailed working papers prepared by the Team Leader and the

other members of the audit team, having regard to:


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The audit plan

The audit objectives

Facts and developments which have emerged during the audit, and

Knowledge of the local government.

The Coordinator should ensure that the audit objectives have been properly concluded and that

there is sufficient relevant and reliable audit evidence to support the audit opinion. The Zonal

Coordinator initials the schedules and the preparation of a list of points as evidence of the

review

The Zonal Coordinator reviews the audit report, the updating of the permanent file, the points to

be carried forward to the next audit, the time summaries and variances from budget and the

staff assessment forms.

Auditor General’s Review

The Auditor General has responsibility for all the work, which has been carried out on the audit,

at all levels and therefore needs to be satisfied as to its quality and appropriateness (including

compliance with statutory and regulatory requirements).

The review by the Auditor General is evidenced by the preparation of a list of points, by

reviewing the schedules of points that are listed for his/her attention and recording the clearance

of those points and by initialling schedules as appropriate.

The Auditor General’s review should, in normal circumstances, be limited to review of the:

Audit planning Sheet

Matters for the attention of the Office of the Auditor General for Local Governments

Draft financial statements

Any working papers prepared by the Zonal Coordinator.

The Auditor General’s review may be delegated to the Director of Evaluation & Reporting.

5.4 Permanent Audit File (PAF)

A permanent audit file is maintained for each local government. The permanent audit file should

contain all the documents and information that will be needed to inform future audits at this local

government.


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The permanent audit file must be reviewed each quarter to ensure that it complete and up to

date before it is handed over to the Team Leader who will be responsible for the audit in the

next quarter.

The basic documents which are to be included in the permanent file are as follows:

The latest annual financial statements for the local government and the monthly financial statements for the current year

The Annual Highlights – the statistical returns on the local government’s finances prepared for the Statistical Unit, Office of the Auditor for General for Local Governments

The latest approved annual budget for the local government

Contract agreements with any consultants for revenue collection (franchised revenue)

Latest end of quarter bank certificates for each of the local government’s bank accounts

Latest quarter bank reconciliations

Approved chargeable rate – details of taxes and charges approved by the State Government for levying of revenue by local governments

Current listing of management staff and political office holders for the local government

Latest nominal roll providing details of all pensionable staff employed by the local government

Approval from the State Governor for any long-term loans in excess of N35 million

Approval from the State Governor for any capital project in excess of N35 million.

Organisation Charts

Audit Planning Sheet

Audit Programme

Reports of the internal auditor.

5.5 Current Audit File

The current audit files should contain the following:

The most recent audit working papers

All useful correspondence since the last audit

All other information, which may be useful in the current or subsequent audit


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Audit files should be retained for at least seven years.

The current audit files should normally contain all information about the current audit from the

planning process up to the point the final report is issued and relevant post audit events.

5.6 Audit Evidence

Evidence is information that is collected and used to provide a factual basis for developing

observations and concluding against audit objectives. Evidence provides grounds for believing

that a particular thing is true or not by providing persuasive support for a fact or a point in

question. As such, it is evidence that must support the contents of an audit report, including any

descriptive material and, more importantly, all observations and conclusions leading to

recommendations.

Documentation of Audit Testing for Evidence

It is important to appropriately document the nature of the tests performed (what kind of test was

performed, what kind of evidence was sought), the extent of the test procedures (how deeply

the auditor probed, how many tests were performed, what portion of the fiscal period was

covered by the tests), the timing of the test procedures (when the testing was performed), the

results of the tests and other procedures and the conclusions reached by the auditors.

The drive towards zero tolerance for corruption by the Federal Government must be seriously

considered when collecting audit evidence as evidence so collected may be used in the

prosecution of culpable officers. For this reason, audit evidence must be of such robust quality

that the work of the Office of the Auditor General for Local Governments will stand up to scrutiny

when examined by external investigative bodies such as Independent Corrupt Practices

Commission (ICPC) and Economic and Financial Crimes Commission (EFCC).

Audit observations, conclusions and recommendations included in the report must be able to

withstand critical examination. They must, therefore, be supported by sufficient appropriate

evidence.

The following rules of thumb have proven helpful in judging the appropriateness of audit

evidence:

Documentary evidence is usually better than testimonial evidence

Audit evidence is more reliable when the auditor obtains consistent evidence from difference sources or of a different nature (e.g. testimonial evidence that is corroborated by other sources is better than testimonial evidence alone)

Original documents are better than photocopies

Evidence from credible third parties may be better than evidence generated within the audited organisation


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The quality of information generated by the audited organisation is directly related to the strength of the organisation's internal controls (the auditors should have a good understanding of internal controls as they relate to the objectives of the audit)

Evidence generated through the auditor's direct observation, inspection and computation is usually better than evidence obtained indirectly.

Sources and types of evidence

There are three broad sources for the information that constitutes audit evidence.

Information gathered by the auditors (primary evidence). The auditors can gather information directly by such means as interviews, surveys and direct inspection or observation. In these cases the auditors themselves have control over the methods employed and the quality of the information gathered. However, it must be emphasized that the auditors need the necessary skills and experience to apply the methods competently.

Information gathered by the person being audited (secondary evidence). Auditors can use information gathered by the person being audited - including the reports of internal audit as well as information found in other files in the local government, minutes of meetings, reports and documents. Auditors should determine the quality of this information by evaluation and corroboration as well as by tests of the effectiveness of the internal controls over the quality of the information. Auditors can reduce tests of information quality if they find that internal controls are effective.

Information gathered by third parties (secondary evidence). Audit evidence can also include information gathered by third parties. In some cases, the auditors may have audited this information themselves. In other cases, establishing the quality of third-party information may be impractical or impossible. The extent to which third-party information can be used as evidence will depend on the extent to which its quality can be established.

Minutes of Meetings

Sharing the results of the interviews among the audit team is crucial. Good documentation,

presented in an easily digestible and accessible form, can add significantly to the efficiency and

effectiveness of the audit evidence from enquiry.

The audit team should prepare formal minutes for all meetings involving local government

officers that the audit team intends to rely on for evidence purposes. It is a matter of judgment

and the responsibility of the Zonal Coordinator to provide guidance to the audit team as to

whether or not a particular meeting will require sign-off of minutes for evidence purposes.

However, it is recommended that the audit team, at the beginning of the audit, informs the

auditee that the record of certain meetings might be used as audit evidence and the approval of

minutes by the Executive Committee will be necessary.

The audit teams should use the following suggested format for notes and or minutes.

The date and location of the meeting


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The date minutes were prepared

The approximate start and end times

The names and positions of each of the attendees

A summary of the purpose of the meeting

The questions asked and the answers to them

A list of actions agreed to at the meeting

A list of all documents identified, offered, or requested at the meeting

Signature of the senior representative of the auditee

Signatures of the officials attending from the Office of the Auditor General for Local Governments.

Before being sent to the Officer of the local government present at the meeting, the minutes

should be reviewed and agreed to by the senior participant from the Office of the Auditor

General for Local Governments at the meeting. The audit team should ensure that the local

government officers do no unduly delay sign-off of the minutes. In cases where sign-off delays

or refusals have been encountered, the matter should be referred to the Auditor General for

Local Governments who will discuss the matter with the Chair of the local government. If the

matter still remains unresolved, it should be referred to the Public Accounts Committee (Local)

of State Assembly, who will consider raising the matter with the local government.


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Chapter 6


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Audit Reporting


The reporting standards are

(a) At the end of each audit the auditor should prepare a written opinion or report, as

appropriate, setting out the findings in an appropriate form; its content should be easy to

understand and free from vagueness or ambiguity, include only information which is supported

by competent and relevant audit evidence, and be independent, objective, fair and constructive.

(b) It is for the SAI to which they belong to decide finally on the action to be taken in relation to

fraudulent practices or serious irregularities discovered by the auditors.

With regard to regularity audits, the auditor should prepare a written report, which may either

be a part of the report on the financial statements or a separate report, on the tests of

compliance with applicable laws and regulations. The report should contain a statement of

positive assurance on those items tested for compliance and negative assurance on those items

not tested. With regard to performance audits, the report should include all significant instances

of non-compliance that are pertinent to the audit objectives. The following paragraphs explain

reporting as an auditing standard. Paragraph 4.0.8 relates both to opinions and reports,

paragraphs 4.0.9 - 4.0.20 relate to opinions and paragraphs 4.0.21 - 4.0.26 to reports.

4.0.8 The form and content of all audit opinions and reports are founded on the following

general principles:

(a) Title. The opinion or report should be preceded by a suitable title or heading, helping the

reader to distinguish it from statements and information issued by others.

(b) Signature and date. The opinion or report should be properly signed. The inclusion of a date

informs the reader that consideration has been given to the effect of events or transactions

about which the auditor became aware up to that date (which, in the case of regularity

(financial) audits, may be beyond the period of the financial statements).


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All audit work should result in an audit report which will usually be sent to the Executive Chair and copied to the Council Manager and the Council Treasurer

The quarterly audit reports follow a standard format

All opinions should be supported by adequate and sufficient audit evidences

Any audit queries which have been raised will be copied with the Auditor General’s report

Audit reports should be issued promptly after the fieldwork has been completed – usually within two weeks of the Exit Meeting

Audit reports may be complemented with meetings to explain the significance of the findings

Quarterly audit reports are usually confidential documents, except when statutory and other audit reports are officially published.

(f) Identification of subject matter. The opinion or report should identify the financial statements

(in the case of regularity (financial) audits) or area (in the case of performance audits) to which it

relates. This includes information such as the name of the audited entity, the date and period

covered by the financial statements and the subject matter that has been audited.

(g) Legal basis. Audit opinions and reports should identify the legislation or other authority

providing for the audit.

(h) Compliance with standards. Audit opinions and reports should indicate the auditing

standards or practices followed in conducting the audit, thus providing the reader with an

assurance that the audit has been carried out in accordance with generally accepted procedures.

(i) Timeliness. The audit opinion or report should be available promptly to be of greatest use to

readers and users, particularly those who have to take necessary action.


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6.2 Introduction

In addition to the statutory audit reports, quarterly reports are provided to the Executive Chair of

Local Governments after each of the inspection audit visits to the local governments. These reports

are then collated and sent to the Public Accounts Committee (Local) of the State House of Assembly.

The reports provide an over-view of the finances of the local government and any audit queries,

observations and other matters of significance. The reports usually have the following sections:

Financial overview

Debt profile

Pensionable personnel emoluments(staff cost)

Internal Control and State of Books of Accounts and Records

Budgetary Matter

Revenue accounts

o Internal revenue shortfall

o Franchised revenue etc

Expenditure accounts

o Unauthorised excess expenditure

o Expenditure not accounted for

o Overseas training charecterised by irregularities

o Payments without internal audit certification

o Doubtful and fictitious expenditure

o Outstanding payment vouchers etc

Audit Highlights – financial statistics for the local government.

6.3 Relevant Persons

The Auditor General for Local Governments should determine the relevant officials who are to

receive the audit reports. These will usually be the Chairs of local governments. However, the

reports will also be relevant for the Council Manager, the Council Treasurer and other heads of

department and so they will be sent copies.


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6.4 Audit Matters of Interest to be Communicated

The matters included in the quarterly audit inspection reports usually cover the standard areas

summarised in the introduction above. In each case the observations or findings should be clearly

and briefly stated and the regulation which is not being followed (for example, the Financial

Memoranda or the Administrative Guidelines) should be indicated.

The Auditor General should consider audit matters of interest that arise from the audit of the

financial statements and communicate them to the Executive Chair. Ordinarily such matters may

include:

The general approach and overall scope of the audit, including any expected limitations thereon, or any additional requirements

The potential effect on the financial statements of any significant risks and exposures, such as pending litigation, that are required to be disclosed in the financial statements

Audit adjustments whether or not recorded by the entity that have, or could have, a significant effect on the entity’s financial statements

Disagreements with management about matters that, individually or in aggregate, could be significant to the entity’s financial statements or the auditor’s report. These communications include consideration of whether or not the matter has been resolved and the significance of the matter

Other matters warranting attention by the Executive Chair, such as material weaknesses in internal control, questions regarding management integrity and fraud involving management.

As part of the Auditor General’s communications, the Chairs of local governments are informed

that:

The Auditor General’s communication of matters includes only those audit matters of interest that have come to the attention of the auditor as a result of the performance of the audit

An audit of financial statements is not designed to identify all matters that may be relevant to those charged with governance. Accordingly, the audit does not ordinarily identify all such matters.

6.5 Audit Queries

Audit queries may be raised by staff of the Office of the Auditor General for Local Governments,

but queries may also be raised by the internal auditor of a local government, the Council

Treasurer or the Council Manager. If they are over-ruled by the Chair of the local government


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they should be referred to the Audit Alarm Committee (if it exists) and the Office of the Auditor

General for Local Governments.

Schedules 1 and 2 of the Guidelines on Administrative Procedure for Local Governments (2011,

pages 44-46) details the irregularities or offences which may result in an audit query being

issued, the time limit for a reply to the query and the sanctions which are to be applied.

If an audit query is needed to be raised during an audit, the Team Leader should discuss the

issue with the Zonal Coordinator. The Zonal Coordinator should review the relevant sections of

the file and initial and date them. The audit query is written and signed by the Team Leader and

sent to the Executive Chair with a copy to the Council Treasurer or other head of department

who is responsible for the particular area.

The audit queries are reported during the Audit Exit Meeting and copies are also sent with the

Audit Inspection Report and signed off by the Head of Evaluation and Reporting.

6.6 Timing of Communication

The Auditor General should communicate audit matters of interest on a timely basis. This enables

those responsible to take appropriate action.

In order to achieve timely communication, the Auditor General discusses with those charged with

governance the basis and timing of such communications. In certain cases, because of the nature of

the matter, the Auditor General may communicate that matter sooner than previously agreed.

The initial draft audit report should be submitted to the Executive Chair of the local government

within two weeks of the end of the audit inspection visit.

6.7 Forms of Communication

The Auditor General’s communications with the Executive Chairs of local governments may be

made orally or in writing. The Auditor General’s decision to communicate orally or in writing is

affected by factors such as:

The size, operating structure, legal structure and communication processes of the entity being audited

The nature, sensitivity and significance of the audit matters of governance interest to be communicated

The arrangements made with respect to periodic meetings or reporting of audit matters of governance interest

The degree of ongoing contact and dialogue the Auditor General has with those charged with governance.


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When audit matters are communicated orally, the Auditor General documents in the working

papers the matters communicated and any responses to those matters. This documentation may

take the form of a copy of the minutes of the Auditor General’s discussion with those charged with

governance. In certain circumstances, depending on the nature, sensitivity, and significance of the

matter, it may be advisable for the Auditor General to confirm in writing any oral communications

on audit matters of governance interest.

Ordinarily, the Auditor General initially discusses audit matters of interest with management,

except where those matters relate to questions of management competence and integrity. These

initial discussions with management are important in order to clarify facts and issues, and to give

management an opportunity to provide further information.

6.8 Other Matters

If the Auditor General considers that a modification of the auditor’s report on the financial

statements is required communications between the Auditor General and the Executive Chair

cannot be regarded as a substitute.

The Auditor General considers whether audit matters of interest previously communicated may

have an effect on the current year’s financial statements. The Auditor General considers whether

the point continues to be a matter of interest and whether to communicate the matter again to the

Executive Chair.

6.9 Confidentiality

Ethical requirements, legislation or regulations impose obligations of confidentiality that restrict

the Auditor General’s communication of audit matters of interest. The Auditor General refers to

such requirements, laws and regulations before communicating with officials in local governments.

In some circumstances, the potential conflicts with the Auditor General’s ethical and legal

obligations of confidentiality and reporting may be complex. In these cases, the Auditor General

may wish to consult with legal counsel.


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Chapter 7

Audit of Financial Statements

The General Introduction to the INTOSAI Financial Audit Guidelines

states:

The main purpose of the INTOSAI Financial Audit Guidelines is to provide INTOSAI members with a

comprehensive set of guidelines for the audit of financial statements of public sector entities. The

INTOSAI Financial Audit Guidelines include Practice Notes, developed by INTOSAI in addition to the

International Standards on Auditing (ISAs) developed by the International Auditing and Assurance

Standards Board (IAASB). They together form a guideline in the INTOSAI standards framework.

Practice Notes, which are included in the INTOSAI Financial Audit Guidelines, provide relevant guidance

on applying each ISA in financial audits of public sector entities in addition to that provided in the

corresponding ISA.

By comparison with the objectives of an audit of financial statements in accordance with the ISAs (i.e. to

express an opinion whether the financial statements are prepared, in all material respects, in accordance

with the applicable financial reporting framework), the objectives of a financial audit of public sector

entities may include additional audit and reporting responsibilities. For example, public sector auditors

may be required to report on: a public sector entity’s compliance or non-compliance with authorities,

including budget and accountability; the effectiveness of internal control over financial reporting; or on

the economy, efficiency and effectiveness of programs, projects and activities.



When developing the annual audit opinion on the financial statements of each local government auditors should consider carefully whether:

o the figures in the main financial statements are correct (within the margin of error of one per cent)

o the format of the financial statements is consistent with the FAAC Guidance (2005) – see annexure A to F of this chapter


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o the notes to the accounts are adequate and provide explanations for all significant aspects of the financial statements

o the quality of internal financial control within the local government is adequate (consider the significance of the audit queries issued and other findings and irregularities)

o the scope of the audit was sufficient and all necessary work was completed as required.

Auditors should ensure that adequate audit evidences have been collected and are documented in the Current Audit File.

Auditors should ensure that appropriate audit samples have been used for audit testing.

Auditors should ensure that adequate analytical review has been undertaken of the financial statements to check that they are clear, understandable and all key issues and developments have been clearly explained.

Auditors should ensure that the audit report includes a brief and clear summary of the reasons for any qualified audit opinion.

7.2 Introduction

The Office of the Auditor General for Local Governments has two main objectives and

approaches to its work:

Regulatory or compliance audits undertaken, for example, during the routine quarterly inspection audits at each local government. These are undertaken in accordance with the INTOSAI Auditing Standards and the approach is detailed in chapter’s two to five of this manual.

Financial audit which is undertaken to provide an independent audit opinion on the annual financial statements of each local government. This work is undertaken in accordance with the INTOSAI Financial Audit Guidelines and is described in this chapter.

The INTOSAI Financial Audit Guidelines provide guidance for conducting financial audits of

public sector entities. The INTOSAI Financial Audit Guidelines include the International

Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards

Board (IAASB). In addition, they include Practice Notes (PN), these provide relevant guidance

on applying each ISA during financial audits of public sector entities in addition to that provided

in the corresponding ISSAI.

This chapter provides a brief guidance to the key aspects of financial audit of the financial

statements of local governments and the requirements of the INTOSAI Financial Audit

Guidelines. Further detailed guidance is to be found in the INTOSAI guide, “General

Introduction to the INTOSAI Financial Audit Guidelines” (2010) and the AFROSAI-E Regulatory

Manual (2010).

This chapter includes the following sections:

Introduction


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Operational planning

Audit fieldwork - obtaining audit evidence

Audit sampling

Materiality

Consideration of fraud

Analytical procedures

Auditor General’s Report on Financial Statements.

Financial audit

A financial audit is conducted in accordance with the ISSAIs and INTOSAI ethical requirements.

This enables the auditor to express an opinion as to whether or not the financial statements are

prepared, in all material respects, in accordance with an identified/applicable financial reporting

framework and/or statutory requirements. (ISSAI 1200.3)

The auditor’s opinion on the financial statements:

Enhances the credibility of the financial statements; but

Does not guarantee the future viability of the entity; and

Does not guarantee the efficiency or effectiveness with which management has conducted the affairs of the entity; and

Does not guarantee that the entity is free of fraud. (ISSAI 1200 A1)

Objectives of financial audit

The overall objectives of the auditor undertaking a financial audit are:

To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and

To report on the financial statements, and communicate as required by the ISSAIs, in accordance with the auditor’s findings (the statutory audit report to the Speaker of the House of Assembly and the Governor) .

Communicate to local government management, the Chair of the local government and parties outside the entity (Ministry of Local Government and Chieftaincy Affairs), in relation to matters arising from the audit as required by the standard or by legislation. (ISSAI 1200.9 & 11)

To achieve this objective auditor should exercise professional judgment and maintain

professional skepticism throughout the audit and, among other things:

Identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity’s internal control.

Obtain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks.


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Form an opinion on the financial statements and any additional objectives on which reporting is mandatory based on conclusions drawn from the audit evidence obtained. (ISSAI 1200.7)

7.3 Operational Planning

WHAT IS THE OUTPUT FROM THIS?

Identify the processes to be audited;

Identify the key risks and controls relevant to each component; and

Decision on the most suitable audit approach to obtain audit assurance e.g. whether the controls will be tested or substantive tests will be performed.

Detailed audit plan

The detailed audit plan does not consist of a single document. It includes the documentation of

the nature, timing and extent of audit procedures to be performed and documents the following

for each audited component:

Procedures as necessary to obtain the relevant audit assurance covering all relevant assertions and requirements of the mandate of the audit (For example reporting non-compliance with certain laws or regulation relating to budget or procurement); (ISSAI 1330 P6) and

The extent of testing based on the assessed inherent and control risks.

The auditor’s responsibility is to design and perform audit procedures in response to the risks of

material misstatement identified and assessed during strategic and detailed planning. The

purpose of the detailed plan is to reduce the risk of material misstatement to an acceptable

level. (ISSAI 1330.1;3)

The auditor’s procedures in response to assessed risks (extent of audit testing)

In order to reduce audit risk to an acceptably low level, the auditor should determine overall

responses to assessed risks at the financial statement level. In addition, the auditor should

design and perform further audit procedures to respond to assessed risks at the assertion level.

(ISSAI 1330.5;6)

7.4 AUDIT FIELDWORK - OBTAINING AUDIT EVIDENCE

WHAT IS THE OUTPUT FROM THIS?

Obtaining audit evidence through:

* performing testing of controls,


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* substantive testing and

* analytical procedures.

The purpose of this section is to establish the standards and to provide guidance on what

constitutes audit evidence in an audit of financial statements, the quantity and quality of audit

evidence to be obtained, and the audit procedures that auditors use for obtaining that audit

evidence. (ISSAI 1500.1)

The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable

conclusions on which to base the audit opinion. (ISSAI 1500.2)

Concept of audit evidence

“Audit evidence” is all the information used by the auditor in arriving at the conclusions on which

the audit opinion is based, and includes the information contained in the accounting records

underlying the financial statements and other information. Audit evidence is usually external

such as documentation obtained from the local government (auditee) or other parties

independent of the auditee. Evidence is information which may corroborate assertions or

contradicts them. (ISSAI 1500.5) (ISSAI 1500 P3; P4)

Audit evidence for the current audit may also include audit evidence obtained from other

sources such as previous audits or other audit work. (ISSAI 1500 P5)

Sufficient, appropriate audit evidence

Audit evidence is necessary to support the auditor’s opinion and report. Most of the auditor’s

work consists of obtaining and evaluating audit evidence. Reasonable assurance is obtained

when the auditors design and perform appropriate audit procedures for the purpose of obtaining

sufficient appropriate audit evidence. (ISSAI 1500.6)

This section provides guidance on:

The concept of audit evidence;

Sufficient, appropriate audit evidence;

The use of assertions in obtaining audit evidence; and

Audit procedures for obtaining audit evidence.


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Sufficiency is the measure of the quantity of audit evidence or how much audit evidence is

needed to provide an opinion. The quantity of audit evidence needed is affected by the risk of

misstatement (the greater the risk, the more audit evidence is likely to be required) and also by

the quality of such audit evidence (the higher the quality, the less may be required). (ISSAI

1500.5)

Appropriateness is the measure of the quality of audit evidence or evidence which is relevant

and reliable to form an audit opinion on the financial statements. This is particularly important

when the auditor uses evidence from prior year’s audit or a performance audit performed.

(ISSAI 1500.5) (ISSAI 1500 P6)

Accordingly, the sufficiency and appropriateness of audit evidence are interrelated. However,

merely obtaining more audit evidence may not compensate for its poor quality. The following are

applicable to the different types of evidence:

Audit evidence from independent sources outside the local government is more reliable than that generated internally; this refers to evidence such as bank confirmations, etc;

Audit evidence gathered internally is more reliable when the related controls are effective; for example information included in the asset register is more reliable when it was found that controls are functioning effectively for asset management;

Audit evidence obtained directly by the auditor (e.g. observation of the application of controls) is more reliable than that obtained indirectly (e.g. by enquiry regarding the application of controls);

Audit evidence in the form of documents and written representations is more reliable than oral representations; for example evidence such as invoices for payments are more reliable as opposed to statements made by personnel of the audited entity during meetings or discussions. Oral evidence needs to be supported by other documented evidence; and

Audit evidence provided by original documents is more reliable than audit evidence provided by copies or facsimiles.

When the information is produced by the local government, the auditor should evaluate whether

the information is sufficiently reliable including:

Obtaining audit evidence about the accuracy and completeness of the information; Evaluating whether the information is sufficiently precise and detailed. (ISSAI 1500.9)

When designing and performing audit procedures, consideration should be given to:

The relevance and reliability of the information to be used as audit evidence. Reliability of evidence may influence the type of audit procedures performed. The passage of time may also adversely impact the ability of performing certain procedures or the reliance of the effectiveness of controls; (ISSAI 1500.7)(ISSAI 1500 P7)

Means of selecting items for testing that are effective in meeting the purpose of the audit procedure. (ISSAI 1500.10)


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If auditors find that audit evidence obtained from one source is inconsistent with that obtained

from another; or the reliability of information is doubtful, the auditor shall determine what

modifications or additions to audit procedures are necessary to resolve the matter. The effect

of this matter, if any, on other aspects of the audit should also be considered. (ISSAI 1500.11)

The auditor’s judgment as to what constitutes sufficient appropriate audit evidence is influenced

by such factors as the following:

Significance of the risk of the likelihood of a potential misstatement;

Effectiveness of management’s responses and controls to address the risks;

Experience gained during previous audits with respect to similar potential misstatements;

Results of audit procedures performed, including whether such audit procedures identified specific instances of fraud or error;

Source and reliability of the available information;

Persuasiveness of the audit evidence; and

Understanding of the entity and its environment, including its internal control.

Sufficient, appropriate evidence to meet any audit objectives which are broader than expressing

an opinion on the financial statements should also be obtained and evaluated by auditors. For

example where the audited entity is responsible for giving grants or other financial assistance to

other parties, it is often required that the auditee should evaluate whether other parties

satisfying the criteria and meeting the terms for receiving assistance. Evidence might then be

required on the entity's exercise of its responsibilities to satisfy itself about the transactions of

these other parties. (ISSAI 1330 P10) (ISSAI 1500 P8)

Auditors take into account data retention requirements for public sector entities when obtaining

evidence as stipulated by relevant legislation. (ISSAI 1500 P9)

The following matters may affect evidence collection and are considered by the auditor:

Legislation imposing additional requirements on audit evidence.

The scope of additional requirements (i.e., are they to be imposed on every document from the audit assignment or on specific documents relating to certain audit issues).

Additional processing, formalities or requirements to which audit evidence is subject.

The purpose of each additional requirement as regards due process of law in following the steps of the audit.

Any restrictions that may be placed upon audit evidence due to specific ways it has been collected and/or produced. (ISSAI 1330 P11) (ISSAI 1500 P10)

Tests of controls

Test of controls are audit procedures designed to evaluate the operating effectiveness of

controls in preventing, or detecting and correcting material misstatements in the financial

statements (ISSAI 1330.4)


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The auditor should perform tests of controls to obtain sufficient appropriate audit evidence that

the controls were operating effectively at relevant times during the period under audit. Tests of

controls are performed when:

There is an expectation of the operating effectiveness of controls or when substantive procedures alone do not provide sufficient appropriate audit evidence at the assertion level. This would be the case when significant risks have been identified for the assertion.

When the auditor expects that controls are operating effectively, the auditor should perform tests of controls. This means that the controls are suitably designed for a specific assertion and have been confirmed to be operational by performing a walkthrough test . (ISSAI 1330.8)

In designing and performing tests of controls, the auditor should keep in mind that inquiry alone

is not sufficient to obtain audit evidence about the operating effectiveness of the controls. The

auditor needs to identify:

How the controls were applied at relevant times during the period under audit; The consistency with which they were applied; and By whom or by what means they were applied.

Tests of controls should be performed to evaluate the operating effectiveness of controls

throughout the period under audit. If controls are tested during an interim period, the auditor

also should obtain evidence regarding the functioning of the controls after the interim period.

(ISSAI 1330.11; 12)

If the auditor wants to use audit evidence for tests of controls from previous year’s audit, the

auditor should still establish that no significant changes happened to those controls subsequent

to the previous audit. This is done through a system walk-through to confirm the way the

system currently operates.

Even if evidence is used from prior quarter’s work the auditor should still document the

conclusions reached about relying on such controls that were tested in a previous audit. (ISSAI

1330.29)

Auditors need to test controls for significant risks for example over sensitive payments, or of controls designed to prevent or detect fraud within the entity. Tests of controls over significant risks should be performed during each audit. In terms of fraud, significant risk areas include occurrence of expenditure, completeness of income and existence of assets. (ISSAI 1330.15) (ISSAI 1330 P7)

When using audit evidence about the operating effectiveness of controls obtained in previous audits, auditors may use evidence obtained in performance audits or other audit activities relevant to the entity. When relying on evidence obtained in previous performance audits, auditors evaluate whether the assertions used and tests performed are adequate for the purpose of the financial statements audit (ISSAI 1330 P9).


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When the auditee is part of a larger government control environment controls may exist outside the entity. The auditor needs to determine how to obtain sufficient appropriate audit evidence about those controls (ISSAI 1330 P8), for example, controls over the Oracle system for paying pensionable salaries for local government staff – evidence may be available from the Office of the State Auditor General.

Substantive procedures

Substantive procedures are performed in order to detect material misstatements at the assertion

level, Substantive procedures comprise:

Tests of details of classes of transactions, account balances, and disclosures; and Analytical procedures. (ISSAI 1330.4)

Irrespective of the assessed risk of material misstatement or whether controls have been tested or not, the auditor should design and perform substantive procedures for each material class of transactions, account balances and disclosures. This requirement reflects the fact that the auditor’s assessment of risk is judgmental and may not be sufficiently precise to identify all risks of material misstatement. Further, there are inherent limitations to internal control including management override. (ISSAI 1330.18)

The auditor shall consider whether external confirmation procedures are to be performed as

substantive audit procedures. This would typically be done to confirm bank balances, loans,

debtors and creditors. Since external confirmations are a very reliable source of evidence,

auditors should consider to obtain confirmation as much as possible and practicable. (ISSAI

1330.19)

The auditor’s substantive procedures should include the following audit procedures related to

the financial statement closing process:

Agreeing the financial statements to the underlying accounting records; and

Examining material journal entries and other adjustments made during the course of preparing the financial statements. (ISSAI 1330.20)

When substantive procedures are performed during the audits of quarters one to three, the

auditor should perform further substantive procedures or substantive procedures combined with

tests of controls to cover the remaining period that provide a reasonable basis for extending the

audit conclusions from the interim date to the period end (ISSAI 1330.22).

7.5 Audit Sampling After designing tests of controls and substantive tests, the auditor should identify the items or

transactions on which to perform the audit procedures, appropriate to the purpose. This should

be done in order to gather sufficient appropriate audit evidence to meet the objectives of the

audit procedures including when the objective is to evaluate the compliance with laws and


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regulations. The objective is to provide a reasonable basis for the auditor to draw conclusions

about the population from which the sample is selected. (ISSAI 1530.4;9)

The means available to the auditor for selecting items for testing are:

(a) Selecting all items (100% examination). This may be appropriate when, for example:

• The population constitutes a small number of large value items;

• There is a significant risk and other means do not provide sufficient appropriate audit

evidence; or

• The repetitive nature of a calculation or other process performed automatically by an

information system makes a 100% examination cost effective.

(b) Selecting specific items such as high value or abnormal items; and

(c) Audit sampling. (ISSAI 1500.A52-54)

Auditors are not always able to test 100% of the items identified for testing. Audit sampling

should enable the auditor to obtain and evaluate audit evidence about some characteristics of

the items selected in order to form or assist in forming a conclusion concerning the population

from which the sample is drawn. (ISSAI 1530.1;6;7;8)

Statistical versus non – statistical sampling approaches

The decision whether to use a statistical or non-statistical sampling approach is a matter for the

auditor’s judgment regarding the most efficient manner to obtain sufficient appropriate audit

evidence in the particular circumstances.

The methodology provided in this chapter utilises the principles of non-statistical sampling.

Sampling process

The sampling process includes three steps which are discussed in details below:

Step 1: Identifying the population to be tested

Step 2: Identification of high value and abnormal items

Step 3: Determining the sample size


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STEP 1. IDENTIFYING THE POPULATION TO BE TESTED

The population to be tested is a class of transactions or transactions underlying an account

balance. It is the entire set of data on which the auditor must obtain assurance for the audit

opinion. If the audit procedure is not applicable to the selected item, the auditor should perform

the procedure on a replacement item. For example when testing the payroll costs, individual

payments would constitute the population. It is vital that an appropriate and complete population

is identified for each procedure. For example, when auditing salary bonuses the auditor should

exclude the employees without bonuses from the sample. (ISSAI 1530.10)

Transactions constituting the population should cover the entire financial year. If sampling is

done for an interim audit that includes only part of the financial year additional sampling will

have to be done during the final audit. So samples for testing should be picked for each

quarterly inspection audit visit.

Sometimes it is found that the auditor may sample from the same population to perform different

kinds of audit tests. In other words, auditors may decide not to draw separate audit samples for

each test but use the same samples already drawn from the relevant population to perform all

applicable audit tests. For example, a sample of payments drawn to test controls may be used

to test compliance with authorities, as well as other substantive tests. This may be done as long

as the sample sizes remain appropriate in relation to the risk and materiality. (ISSAI 1530 P5)

STEP 2. IDENTIFICATION OF HIGH VALUE AND ABNORMAL ITEMS

Stratification is the process of dividing a population into sub-populations with similar

characteristics, specifically for substantive testing. During this, for example, the high value

transactions will be separated from the population and included in the sample to be tested.

When auditing valuation of accounts receivable it can be stratified by aging whereby long

outstanding debtors are separated from the population and tested.

When performing substantive tests the auditor uses sampling to test the amounts in the financial

statements. For this purpose the sample frequently consists of items of a higher value.

Stratification is a useful aid in that it allows testing of a high proportion in value of the population

with relatively few items.

Sampling units are the individual items comprising the population. They may be defined as a document, an entry, a line item, a balance or a transaction. The decision will be based on the practicality of selecting the sampling units. Detailed tests are performed for either overstatement or understatement. The nature of the assertion being tested generally determines whether one would test for overstatement or understatement. This is also commonly known as the direction of testing. Assertions that normally require the balance to be tested for overstatement include occurrence, accuracy, compliance with laws, rules and regulations as well as valuations. Assertions that normally require testing for understatement include completeness, cut off, value-for-money and disclosure.


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STEP 3: DETERMINING THE SAMPLE SIZE

The auditor should select items for the sample with the expectation that all sampling units in the

population have a chance of selection.

Tests of controls

For tests of controls the following table can be used to determine the appropriate sample size:

Type of control Moderate control reliance High control reliance

Detailed controls

Controls performed randomly – mostly

more than once a day e.g.

authorization of payment vouchers

30 selections 50 selections

Daily controls

Performed once a day e.g. banking,

counting cash received etc.


Monthly controls

Controls performed monthly, e.g. bank

reconciliations, approval of salary

payments


The following factors affect the number of selections for testing controls:

The lower the level of reliance placed on the controls tested, the lower the number of Selections required. Where a risk factor has been identified for a specific transaction type, the number of selections will increase.

Control testing will only be performed when the auditor is confident that controls for the audit components are adequate. Reference should be made to the decisions in the Identification of key controls in working paper. It is clear that the lower the level of reliance placed on the controls tested, the lower the number of selections required for control testing. Low reliance on controls will require more assurance to be obtained through substantive procedures. Sampling for Substantive Tests Sample sizes for substantive testing may be adjusted as follows depending on the level of reliance that can be placed on the systems of internal financial control:


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Level of risk Sample size

High 100%

Medium 100% above say N50,000 and

50% below this level

Low 100% above say N50,000 and

25% below this level

Where the systems of internal financial control are poor, the level of risk will be high and 100%

substantive testing should be undertaken. Where the internal controls are particularly good the

level of risk will be low and the level of substantive testing may be reduced. However, care

should be taken that contracts etc are not split into several payments to ensure that transaction

is subject to a reduced likelihood of being tested.

A justification for the reduced level of substantive testing must be included within the audit

planning memorandum. Considerations which will influence the level of audit testing include:

• The control environment – are key controls applied? Is internal audit well performed?

• The nature and amount of the transactions and balances involved – what is the quarterly level of revenue and expenditure?

• The results of the previous audits – an adverse audit opinion (not true and fair) will result in high risk and 100% substantive testing.

• The nature of any changes to the accounting and internal control systems since they were previously tested.

• Vacancies of key staff.

7.6 Materiality

Misstatements, including omissions, are considered to be material if they, individually or

together, could reasonably be expected to influence the views of users on the financial

management of local government developed on the basis of their annual financial statements.

The determination of materiality is based on the professional judgement of the auditor and their

understanding of the local government’s operations, risks and financial statements. The

objective of the auditor is to apply the concept of materiality appropriately throughout the audit,

especially when:

Identifying the components to be audited (annual planning) Determining the nature, timing and extent of audit procedures (operational planning); and


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Evaluating the effect of misstatements (reporting). (ISSAI 1320.5) In the case of spending entities like local governments, the basis to calculate materiality is usually the gross expenditure of the local government. Auditors normally set materiality in the range 0.25 per cent to 2 per cent of gross expenditure. Qualitative materiality in the public sector gets an additional emphasis as the “context and

nature” of an item needs to be considered. This includes, for example, sensitivity covering a

variety of matters such as compliance with regulations, legislative concern or public interest.

The public interest reflects the fact that all public funds represent public money and therefore

the accountability for spending public money is much greater than for a private business. Public

interest requires an understanding that money is not simply spent and recorded in the books of

account but that the money was spent on its intended purpose. (ISSAI 1320.6) (ISSAI 1320 P5;

P6; P8; P10)

Irregularities, such as spending money on the private house of the Chair of a local government,

may be considered to be material and of public interest even if the value is below the usual

materiality level set by the Auditor General.

7.7 Consideration of Fraud

What is fraud?

Misstatements in the financial statements can arise from either fraud or error. The distinction is

that fraud is caused intentionally while an error is unintentional. (ISSAI 1240.2)

Although the auditor may suspect or, in rare cases, identify the occurrence of fraud, the auditor

does not make legal determinations of whether fraud has actually occurred. (ISSAI 1240.3)

Fraudulent financial reporting may be accomplished as follows:

Manipulation, falsification (including forgery), or alteration of accounting records or supporting documentation from which the financial statements are prepared.

Misrepresentation or omission of transactions, events or other significant information from the financial statements.

Intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure.

Abuse, including the misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate. (ISSAI 1240 P6)

Misappropriation of assets can be accomplished in a variety of ways including:

Embezzling receipts (for example, misappropriating collections on accounts receivable or diverting receipts in respect of written-off accounts to personal bank accounts).

Stealing physical assets or intellectual property (for example, stealing inventory for personal use or for sale, stealing scrap for resale, colluding with a supplier by disclosing technological data in return for payment).


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Causing an entity to pay for goods and services not received (for example, payments to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agents in return for inflating prices, payments to fictitious employees).

Using an entity’s assets for personal use (for example, using the entity’s assets as collateral for a personal loan or a loan to a related party).

The primary responsibility for both fraud prevention and detection rests with management and

those charged with governance or oversight. (ISSAI 1240.4)

Responsibilities of auditors

Auditors are responsible for obtaining reasonable assurance that the financial statements are

free from material misstatement, whether caused by fraud or error. (ISSAI 1240.5)

However, due to inherent limitations of an audit, there may be material misstatements which

may not be detected, however well the auditor planned and performed the audit. This is

particularly true in the case of fraud where the risk of not detecting a material misstatement is

higher, due to the applicability of the following scenarios:

Person(s) committing fraud will try to conceal it and in most cases also involve sophisticated and carefully organized schemes to do so. These may include forgery, deliberate failure to record transactions, or intentional misrepresentations being made to the auditor.

Collusion between more than one employees will usually make detection of fraud particularly difficult during routine audit. (ISSAI 1240.6)

Fraud involving management whereby accounting records are easily manipulated, present fraudulent information, overrun control procedures. (ISSAI 1240.7)

The objectives of the auditor are:

To identify and assess the risks of material misstatement of the financial statements due to fraud;

To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, and

To respond appropriately to fraud or suspected fraud identified during the audit through designing and implementing appropriate responses. (ISSAI 1240.10)

Auditors should maintain professional skepticism throughout the audit, recognizing that fraud

could exist, notwithstanding the auditor’s past experience with the entity and management. For

this reason, an attitude of professional scepticism is vital for the auditors throughout the audit,

recognizing the possibility that a material misstatement due to fraud could exist and internal

controls effective to discover errors may not be effective to discover fraud. (ISSAI 1240.8)

(ISSAI 1240 P7)


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Threats to maintain professional scepticism may exist due to:

The nature of personnel or professional relationships as a result of the political process/environment

The public sector audit organization’s exclusive mandate, resulting in the lack of audit competitors

In some environments, the lack of requirements to rotate auditors regularly. (ISSAI 1240 P8)

Unless the auditor has reason to believe the contrary, the auditor may accept records and

documents as genuine. If the auditor believes that a document may not be authentic or have

been modified without disclosing this to the auditor, or there are inconsistencies in the

responses of management the auditor should investigate further. (ISSAI 1240.12-14)

Identifying risks of material misstatement due to fraud (ISSAI 1240.16)

Auditors should inquire from management and obtain evidence regarding:

Management’s assessment of the risk of fraud;

Management’s process for identifying and responding to the risks of fraud in the entity, including any specific transactions or account balances where risk of fraud is likely to exist;

Any actual, suspected or alleged fraud affecting the entity identified through, for example, internal audit activities; (ISSAI 1240.18,19)

The internal controls established by management to mitigate (reduce) the risk of fraud, processes for identifying and responding to the risks of fraud and monitoring by those charged with governance; (ISSAI 1240.20)

Whether the Chair, members of ExCo, councillors, or management have knowledge of any actual, suspected or alleged fraud affecting the entity; (ISSAI 1240.21) (ISSAI 1240 P12)

Whether unusual or unexpected relationships that have been identified in performing analytical procedures, including those related to revenue accounts, may indicate risks of material misstatement due to fraud; and (ISSAI 1240.22)

Whether any of the information obtained throughout the audit indicates that fraud risk factors are present; (ISSAI 1240.23)

Whether any of the information obtained from the other risk assessment indicates that fraud risk factors are present. While fraud risk factors may mean that there is actual fraud, they have often been present in circumstances where frauds have occurred and therefore may indicate risks of material misstatement due to fraud. (ISSAI 1240.24)

The auditor should treat risks of fraud as significant risks and accordingly, to the extent not

already done so, the auditor shall obtain an understanding of the entity’s related controls,

including control activities, relevant to such risks. (ISSAI 1240.27)

The auditor should identify and assess the risks of material misstatement due to fraud at the

financial statement level, and at the assertion level for audited components. (ISSAI 1240.25)


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7.8 Analytical Procedures

Analytical procedures are used to evaluate financial information through analysis of plausible

relationships among both financial and non-financial data. Analytical procedures also include

any investigation relating to identified fluctuations or relationships that are inconsistent with

other relevant information or that differ from expected values by a significant amount. (ISSAI

1520.1;4)

The auditor should apply analytical procedures:

As a form of substantive testing;

To assist the auditor when near to the end of the audit in forming an overall conclusion on the financial statements. This is mainly to determine whether the financial statements are consistent with the auditor’s understanding of the entity. (ISSAI 1520.3)

Analytical procedures that can still give valuable and cost effective audit assurance. Examples of these are:

Comparison between budgeted and actual figures will give evidence about overspending

or under-performance of an entity;

Month on month comparison for example on salaries and wages figures;

Comparison between prior year and current year expenditure figures; and

Comparing expected results to actual results – for example comparing actual revenue collected

in schools with the expected amount (number of students multiplied by the annual fees per

student). In such case auditors would benefit the most of the evidence where the actual amount

is near to the expected amount. Large variances between actual and expected amounts would

indicate that further audit procedures need to be performed.

Comparison of information between similar entities, programs or projects. (ISSAI 1520 P9; P12)

In financial audits, the auditor should analyse the financial statements to establish whether

appropriate accounting standards for financial reporting and disclosure are complied with.

Analysis of financial statements should be performed to such a degree that a rational basis is

obtained to express an opinion on the financial statements.

In addition, the auditor should ascertain the existence of the expected relationships within and

between the various elements of the financial statements identifying any unexpected

relationships and any unusual trends. The auditor should therefore thoroughly analyse the

financial statements and ascertain whether:

(a) financial statements are prepared in accordance with the required accounting principles;

(b) financial statements are prepared with due consideration to the circumstances of the

audited entity;

(c) sufficient disclosures are presented about various elements of financial statements;


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(d) the various elements of financial statements are properly evaluated, measured and

presented; and

(e) they comply with existing accounting standards.

7.9 Auditor General’s Report on the Financial Statements

The content and the format of the financial statements of local governments are regulated by

guidance issued by the Federation Account Allocation Committee (FAAC). The latest guidance

was issued in 2004. This specifies that the annual opinion of the Auditor General should be in

the following format:


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Statement No.2

Statement of Opinion of Auditor-General

In compliance with the Constitution of the Federal Republic of Nigeria 1999, I have examined the

accounts and the financial statements of………………… local government for the year ended 31st

December, 20XX. Proper returns were (not) rendered by the accounting officer in conformity with

the Lagos State Public Finance Management Law No. 7 of 2011. I have (not) obtained information

and explanations necessary in the discharge of my responsibility. The audit was conducted in

accordance with the audit requirement and the national auditing standard for public sector in

Nigeria. In addition, projects and programmes were verified in line with the concept of performance

audit.

In the discharge of my responsibility as required by the same constitution, the financial statements

have (not) been certified subject (due) to comments contained in this report.

In my opinion, programmes undertaken by ……………. Local government during the year were (not)

reasonably executed.

Furthermore, the financial statements and related schedules give a true and fair view of the state of

affairs of ……………local government as at 31st December, 20XX.

…………………………………………………..

Auditor-General for Local Governments

Conditions for a clean = true and fair audit opinion

An unqualified opinion may be provided by the Auditor General for Local Governments if the

following conditions apply:

All the figures in the main three financial statements (Statements 3, 4 and 5) are found to be correct – with a margin of error of plus or minus one per cent (+/- 1%)

The format of the financial statements follows that provided in the 2005 FAAC Guidance


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Sufficient notes are provided to explain the financial statements and provide further analysis where this is needed

The quality of internal financial control is reasonable and few or no audit queries were raised and few irregularities or audit findings were reported (depends on the nature of the audit queries or findings).

If these conditions do not apply then one of the following opinions will be used:

Emphasis of matter

Disclaimer

Qualified opinion.

However, auditors have to consider the overall effect of all the findings and especially those

related to the above four bullet points. What is the combined effect of all the problems? Does

this really affect our overall view on the quality of the financial statements and so the opinion of

the Auditor General.

Emphasis of matter

This may be used when the financial statements are considered to show a true and fair view,

but certain features should be high-lighted, for example, a significant increase in the size of the

local government’s debt or reduction in the level of IGR collected.

In addition, an emphasis of matter may be used where sufficient explanations are not provided,

but otherwise the financial statements show a true and fair view, for example, is there

overspending against a specific budget head and this is not adequately explained in the notes

to the accounts.

Disclaimer of Opinion

A disclaimer of the audit opinion means that the Auditor General for Local Governments is

unable to provide an opinion on whether the financial statements provide a true and fair view.

This may be the case, for example, if the scope of the audit work was significantly restricted, for

example, if the bank statements were not made available to the auditors. Other examples

would be if there was a fire and all the financial records of the local government were destroyed

or if the local government had not prepared any financial statements.


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Qualified Opinion

A qualified opinion means that, in the opinion of the Auditor General for Local Governments, the

financial statements do not provide a true and fair view. This could be the case if one or more

of the conditions for a clean audit report (see above) were not met.

Clearly there will be a range of cases from financial statements which clearly do not show a true

and fair view to those where the situation is less straight forward. The Team Leader should

discuss the opinion with the Zonal Coordinator. Their conclusion will then be passed to the

Director of Evaluation & Reporting for consideration before being passed to the auditor general

for a final decision.

In cases where the financial statements broadly provide a true and fair view, but one or two

figures are incorrect then an ‘except for’ opinon may be provided. In this case, the opinion is

that the “financial statements provide a true and fair view except for” certain conditions which

should then be detailed and explained.

Where it is decided that the financial statements of a local government do not show a true and

fair view a broad summary of the reasons for this opinion should be provided. This is to help the

readers of the financial statements to understand the significance of the opinion and that it is a

serious matter. It may be sufficient to refer the reader to paragraph 6 of the report of the Auditor

General which provides a review of the financial statements, but it may be necessary to explain

the audit findings in non-technical language to ensure that non-professional accountants

understand the reasons and their significance.

Further guidance

Financial statements with disclosure notes including a statement of accounting policies and

other explanations are subject to audit. The objectives of the auditor are to:

1. Form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and

2. Express clearly that opinion through a written report that explains the basis of the opinion. (ISSAI 1700.6;8;9;10)

To form an opinion the auditor should perform relevant procedures to provide reasonable

assurance that the financial statements are free of material misstatements and that all

requirements of the applicable financial reporting framework have been correctly applied. The

auditor should follow the approach prescribed in this manual and conclude on the required

aspects. (ISSAI 1700.11;12)

Consideration of identified misstatements

Evaluating the effect of misstatement

In forming an opinion on the financial statements, auditors need to conclude whether the

financial statements as a whole are free from material misstatement. (ISSAI 1450.1)


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A misstatement is a difference between the amount, classification, presentation, or disclosure of

a reported financial statement item and the amount, classification, presentation, or disclosure

that is required for the item to be in accordance with the applicable financial reporting framework

or legislation. Misstatements can arise from error or fraud. Auditors need to consider whether

financial statements give a true and fair view and giving consideration to laws and regulations

as required. (ISSAI 1450.4)

In doing that the auditor should assess the effect of identified misstatements on the audit and

the effect of aggregated uncorrected misstatements in forming an opinion. In addition to this, in

the public sector, misstatements include instances of non compliance with legislation which also

needs to be assessed. (ISSAI 1450.2)

At this point auditors should also:

Consider whether the nature and occurrence of misstatement indicate that the initial risk of material misstatement identified on a financial statement level is still appropriate. (ISSAI 1450.5;6)

Re-calculate final materiality and determine whether it will differ from preliminary materiality. If yes, the impact of any changes to materiality and risk on the audit approach need to be considered. (ISSAI 1450.10)

Aggregate audit findings and evaluate whether the accumulated misstatements approach materiality. The auditor should consider: o The size and nature of the misstatements, considering quantitative and qualitative

materiality factors; o The effect of uncorrected misstatements related to prior periods; (Refer to 6.5.2 Audit

differences working paper) (ISSAI 1450.11)

Consider whether adequate and sufficient audit evidence was collected during the audit or whether the audit procedures should be extended to identify the extent of certain problems.


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Forming an Opinion On the Financial Statements

The figure below provides guidance to Auditor General, in deciding the type of modified

auditor’s report to be issued.

Modified

reports

Matters that do not

affect the auditor’s

opinion

Emphasis of

matter

Limitation on

scope

Effect is so

material and

pervasive

and/or

fundamental

that auditor is

unable to

express an

opinion

Disagreement with

management

Matters that do affect

the auditor’s opinion

Effect is not

so material

and pervasive

and/or

fundamental

as to require

disclaimer of

opinion

Effect is not

so material

and pervasive

and/or

fundamental

as to require

adverse

opinion

Effect is so

material and

pervasive

and/or

fundamental

that auditor

concludes that

a qualified

opinion is

inadequate

Additional

reporting

responsibility

To

highlight

a matter

Disclaimer

of opinion

Qualified

opinion

Qualified

opinion

Adverse

opinion


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These different types of audit opinion are described in greater detail below:

A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is

so material and pervasive and/or fundamental that the Auditor General has not been able to

obtain sufficient appropriate audit evidence, and accordingly, is unable to express an opinion on

the financial statements.

A qualified opinion should be expressed when the Auditor General concludes that an unqualified

opinion cannot be expressed but that the effect of any disagreement with management, or

limitation on scope, is not so material and pervasive and/or fundamental as to require an

adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as being

“except for” the effects of the matter to which the qualification relates.

An adverse opinion should be expressed when the effect of a disagreement is so material and

pervasive and/or fundamental to the financial statements that the Auditor General concludes

that a qualification of the report is not adequate to disclose the misleading or incomplete nature

of the financial statements.

Whenever the Auditor General expresses an opinion that is other than unqualified, a clear

description of all the substantive reasons should be included in the report, together with, unless

impracticable, a quantification of the possible effect(s) on the financial statements. Ordinarily,

this information would be set out in a separate paragraph preceding the opinion or disclaimer of

opinion, and may include a reference to more extensive information, if any, in a note to the

financial statements.

Limitation on scope

A limitation on the scope of the Auditor General’s work may sometimes be imposed by the

entity, for example, when the terms of the engagement specify that the Auditor General will not

carry out an audit procedure that the Auditor General believes is necessary. However, when

the limitation in the terms of a proposed engagement is such that the Auditor General believes

the need to express a disclaimer of opinion exists, the Auditor General would ordinarily not

accept such a limited engagement as an audit engagement, unless required by statute. Also, a

statutory auditor would not accept such an audit engagement when the limitation infringes on

the Auditor General’s statutory duties.

A scope limitation may be imposed by circumstances, for example, when the timing of the

Auditor General’s appointment is such that the Auditor General is unable to observe the

counting of physical inventories. It may also arise when, in the opinion of the Auditor General, it

is unable to carry out an audit procedure believed to be desirable. In these circumstances, the

Auditor General would attempt to carry out reasonable alternative procedures to obtain sufficient

appropriate audit evidence to support an unqualified opinion.

When there is a limitation on the scope of the Auditor General’s work that requires expression of

a qualified opinion or a disclaimer of opinion, the auditor’s report should describe the limitation,


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and unless impracticable, indicate the possible adjustments to the financial statements that

might have been determined to be necessary had the limitation not existed.

Disagreement with management

The Auditor General may disagree with management about matters such as the acceptability of

accounting policies selected, the method of their application, or the adequacy of disclosures in

the financial statements.

If such disagreements are material and pervasive and/or fundamental to the financial

statements, the auditor should express a qualified or an adverse opinion. The Auditor General

should describe the disagreement and, if possible, indicate the possible adjustments to the

financial statements had there not been a disagreement.


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Annex A

Statement No. 1

Responsibility for financial statements

These financial statements have been prepared by the Council Treasurer of ………… Local

government in accordance with the provisions of the Lagos State Public Finance Management

Law, No. 9 of 2011 and Local Government Administration Law No. 7 of 1999.

The financial statements comply with generally accepted accounting practice. The Council

Treasurer is responsible for establishing and maintaining a system of internal controls designed

to provide reasonable assurance that the transactions recorded are within statutory authority

and properly record the use of all public financial resources by the local government to the best

of my knowledge, this system of internal control has operated adequately throughout the

reporting period.

Sign……………………………..

Treasurer

Date…………………………….

We accept responsibility for the integrity of these financial statements, the information they

contain and their compliance with the mentioned Laws. In our opinion, these financial

statements fairly reflect the financial position of ……………. Local government as at 31st

December, 20XX and its operations for the year ended on that date.

………………………………….. …………………………………..

Chair Treasurer

Date………. Date……….


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Annex B

Statement No.2

Statement of Opinion of Auditor-General

In compliance with the provisions of Local Administration Law No 7 of 1999 and Lagos State

Public Finance Management Law No. 9 of 2011, I have examined the accounts and the

financial statements of………………… local government for the year ended 31st December,

20XX. Proper returns were (not) rendered by the accounting officer in conformity with the Laws.

I have (not) obtained information and explanations necessary in the discharge of my

responsibility. The audit was conducted in accordance with the audit requirement and the

national auditing standard for public sector in Nigeria. In addition, projects and programmes

were verified in line with the concept of performance audit.

In the discharge of my responsibility as required by the Laws, the financial statements have

(not) been certified subject (due) to comments contained in this report.

In my opinion, programmes undertaken by ……………. Local government during the year were

(not) reasonably executed.

Furthermore, the financial statements and related schedules give a true and fair view of the

state of affairs of ……………local government as at 31st December, 20XX.

…………………………………………………..

Auditor-General for Local Governments

Date……….


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Annex C

Statement No.3

……………………………………… Local Government

Cash flow Statement for the year ended 31st December, 20XX

Notes Current year

(Nm)

Previous year

(Nm)

Cash Flows from Operating Activities

Receipts

o Internally Generated Revenue 3 X X

o Grants/Subventions 4 X X

o VAT 5 X X

o Statutory Allocations 6 X X

o Miscellaneous 7 X X

Total Receipts X X

Payments

o Personal Emoluments 8 (X) (X)

o Education Services (X) (X)

o Transport Services (X) (X)

o Health Services (X) (X)

o Mining & Petrol-Chemical Services (X) (X)


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o Agricultural Services (X) (X)

o Other of General Nature 9 (X) (X)

Total Payments (X) (X)

Net Cashflow from Operating Activities (a) X X

Cash Flows from Investment Activities

o Purchase/Construction of Assets 10 (X) (X)

o Purchase of Financial Market Instruments (X) (X)

o Proceeds from Sale of Assets X X

Net Cashflow from Investment Activities (b) X X

Cash Flows from Financing Activities

o Proceeds from Loan and Other Borrowings 11 X X

o Dividends Received 12 X X

o Repayments of Loans 13 (X) (X)

Net Cashflow from Financing Activities (c) X X

Net Increase/Decrease in Cash & Its Equivalents

(a+b+c)

X X

Cash & Its Equivalents at 1/1/20XX X X

Cash & Its Equivalents at 31/12/20XX X X

The accompanying notes are an integral part of these statements


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Annex C

Statement No.4

……………………………………… Local Government

Statement of Assets & Liabilities as at year ended 31st December,

20XX

Notes Current year

(Nm)

Previous year

(Nm)

ASSETS

Cash & Bank Balances 14 X X

Investments 15 X X

Advances 16 X X

Others 17 X X

TOTAL ASSETS X X

LIABILITIES

Deposits 18 X X

Loans 19 X X

General Revenue Balance 20 X X

TOTAL LIABILITIES X X



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Annex E

Statement No.5

Statement of Revenue and Expenditure for the year ended 31st

December, 20XX

Actual

Previous year

(Nm)

Notes Budget

Current year

(Nm)

Actual

Current year

(Nm)

Variance

%

XX Opening Balance (General

Revenue Balance B/F from

previous year)

XX

REVENUE

X o Rates 21 X X X

X o Fines, Fees & Licences 22 X X X

X o Earnings & Sales 23 X X X

X o Rent on Government Property

X X X

X o Interest & Dividend 24 X X X

X o Taxes (Direct & Indirect) 25 X X X

X o Statutory Allocation 26 X X X

o Miscellaneous Revenue 27 X X X

X TOTAL REVENUE (A) X X X

EXPENDITURE

X o Personnel Cost 28 X X X


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X o Pension & Gratuities 29 X X X

X o General Administration 30 X X X

X o Health & Environment 31 X X X

X o Works and Housing 32 X X X

X o Education 33 X X X

X o Agriculture and Social Development

34 X X X

X o Grants & Subsidies 35 X X X

X o Capital Projects 36 X X X

X o Miscellaneous Expenses 37 X X X

X TOTAL EXPENDITURE (B) X X X

X OPERATING BALANCE

(Annual Surplus/Deficit) (A-B)

X X X

X Closing Balance (GRB C/F)

(Opening Balance + Operating

Balance)

X X X



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Annex F

Statement No.6

Notes to the Financial Statements

The notes should include a section stating clearly the accounting policies adopted in the

preparation of the financial statements. These should be arranged as follows:

Statement of compliance with any known standards

Statement of accounting policies applied

• Basis of Accounting

The accounts are prepared under the historical cost and cash basis of accounting. There are no

adjustments made to reflect the impact of specific price changes or changes in the general level

of prices on the financial statements. Conventionally under the cash basis of accounting, fixed

assets are not capitalized but are written off fully in the year of acquisition.

• Presentation of the financial statements

Details of General Revenue Balance are disclosed by way of notes in the financial statements of

the local government.

• Investments

Investments that are not written off in the year of acquisition are stated at the cost ruling at the

statement of affairs date. Gain or loss arising on transactions whether realized or investment

income from securities is credited when received.

• Stocks

Stocks have not been valued, as they are expensed in the year of purchase under the cash

basis of accounting.

• Cash and Cash Equivalents

This is an expanded definition of cash to include some investments where the date of maturity is

three months or less from the date of acquisition.

• Prior Period Adjustments

Correction of fundamental and material errors is treated as a prior period adjustment.

Disclosure of the effect of new standards not yet adopted is also required.


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Supporting information for items presented on the face of the financial statement in order in

which each line is presented and other disclosures or relevant supporting statement which may

include;

Statement of revenue analysis by Head

Statement of expenditure analysis by Head

Statement of project payments –summary

Statement of grants and subsidies

A year-end manpower statement.


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Chapter 8

Completed Capital Projects Inspection

8.1 Introduction The desire of government to ensure economic, effective and efficient utilization of public funds in the acquisition and procurement of public goods and services led to what is now known as Value for Money Audit. Project execution and implementation in local governments assumed phenomenal growth with the release to local governments of increased funds and an emphasis by Lagos State on the completion of development or capital projects. The possibility of these huge releases being squandered on frivolities or outright embezzlement by public officials is undoubtedly high. Hence the need for institutionalized mechanism of periodic project inspection and evaluation. Consequently, project inspection and monitoring is an attempt to ensure prudent and judicious application of public resources entrusted to local governments in the provision of the dividends of democracy and social services to the community. This initiative of the Office of the Auditor General for local governments is undertaken each year with the assistance and cooperation of engineers from the State Ministry of Works and Infrastructure, engineers from Lagos State Development and Property Corporation and local governments and Chairs of Community Development Committees.

8.2 Process The following processes are usually adhered to when undertaking completed capital projects inspection. 1. Request and obtain a list of capital projects executed by each local government

highlighting: a. Completed projects b. Ongoing projects c. Abandoned projects (a project is considered abandoned if there is no activity on the site for a period of one (1) year or more) d. The Sector of the project. e. Description of project f. Location of project g. Name of Contractor or if by direct labour h. The total Contract sum i. The Amount paid to date including any mobilisation fee j. Stage of work or completion.

2. Ensure that the list of projects from each local government/council is forwarded in both hard and soft copies, to facilitate compilation and collation.


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3. Send reminders to defaulting local governments/Local Council Development Areas. A defaulting local government is a Council that has failed to submit her list of projects in the approved format as requested (see Annex A to this Chapter).

4. Collate a comprehensive list of all projects from all local governments. 5. Check and verify the accuracy of the list submitted to identify duplicated project(s). A

Project is described as duplicated if it was previously completed, inspected and reported in an earlier inspection exercise.

6. Ensure that the list of submitted projects are appropriately endorsed by the Executive

Chair, the Council Manager and the Council Engineer. 7. Convene a pre-meeting of relevant stakeholders including State Engineers, Council

Engineers, Chairs of Community Development Committees (CDC), Inspectorate Division of the Ministry of local government & Chieftaincy Affairs and Audit Team Leaders.

8. Directorate of Inspection, Monitoring and Inter-Governmental Relations to constitute the postings to the individual Project Teams (15) with the following composition:

Team Leader – usually not less than a Principal Auditor

State Engineer – usually not the below the rank of Principal Engineer.

Auditors – usually three (3) Auditors in the officer cadre.

Chair of relevant Community Development Committees

Team Secretary - usually an Administrative officer. 9. Create a file for each local government. 10. Convene the final meeting of the stakeholders with the Audit Team Leaders in

attendance and distribute the files to each team. Each file should contain the following items:

the list of projects submitted by the local governments

letter of posting indicating the local governments where each team will work

Bill of Engineering Measurement (BEMe) to ensure uniformity of project assessment and the reasonableness of the costs used in project tenders.

11. Review the list of projects with aim of identifying local governments with projects worthy

of celebration. 12. A seminar/Flag off Ceremony is held to mark the commencement of the exercise. The

objective is to expose participants to new information, techniques and methods of project documentation and assessment. The objective of the flag off ceremony is also to create further awareness as to the commencement of the inspection exercise state-wide and also to celebrate worthy projects so as to encourage other local governments to emulate the performing and the selected one. Thus one of the best local governments is selected to take for flag off ceremony.

13. Commence Project Inspection Exercise. The project inspection exercise usually lasts for one (1) month.


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14. Submission of Team report to the Auditor General. Each team is expected to forward its report containing the observations and assessment to the Auditor-General. 15. Vetting of report by the Auditor General. 16. Release of draft report to the local governments 17. Responses from the local governments reacting to the observations and assessment. 18. Appraisal of local government responses by the Team Leaders. 19. Publication of Report. 20. Distribution of the report to relevant stakeholders (Governor, House of Assembly, donors, Chairs of local governments, relevant ministries in the State Government).


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ASSESSMENT CRITERIA

i. Tender Procedures: The required tender procedures (in Financial Memoranda etc) must be strictly adhered to.

ii. Bill of Quantities: The Bill of Quantities must be attached to the payment voucher iii. Contract Agreement: The contract Agreement must be prepared, signed and

attached to the payment voucher iv. Performance Bond: This must be obtained from reputable financial institution

attesting to the financial capability and competence of the contractor. v. Relevant approval: The relevant approvals must be obtained from the

appropriate authority (ExCo or State Governor for contracts above N35 million) vi. Budgetary Provision: The project must have adequate Budgetary Provisions vii. Physical Existence: The Project must be in existence physically viii. Quality of Projects: The Project quality must be sound and unimpeachable - as

assessed by the State Engineer ix. Communal need: The project must meet the expectations of the community – as

assessed by the Chairs of the Community Development Committees x. Timely completion: Project must be completed within the time schedule xi. Accountability for Direct Labour Projects: Where project is executed through

Direct Labour, proper documentation must be provided and expenditure accounted for

xii. Reasonability of the fund expended: Every project must meet the reasonability test

xiii. Certificates of projects by members of professional bodies: Members of recognised professional bodies in the relevant field must certify the project to be of good standard

Qualification for Rating:

What qualifies a project for “A” rating. Where items i-xiii are satisfactory

What qualifies a project for “B” rating Where items i-x are satisfactory

What qualifies a project for “C” rating Where items i-ix are satisfactory

What qualifies a project for “D” rating Where items i-viii are satisfactory

What qualifies a project for “E” rating Where items i-vii are satisfactory

What qualifies a project for “F” rating Where none of the items are satisfactory or not seen


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Annex A

List of Projects Completed by Local Governments and Local Councils

S/N LOCATION CONTRACTOR ADDRESS CONTRACT SUM

STAGE OF COMPLETION

ASSESSMENT REMARKS


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Annex B PROJECT REPORT FORMAT

The Chair, ----------------------------------------------

----------------------------------------------

THE AUDIT REPORT ON THE INSPECTION OF PROJECTS EMBARKED UPON BY …………………………………………………DURING THE PERIOD

Audit inspection of the Projects embarked upon by ………………………… during the period

July ……… to December ……….. has been carried out in compliance with the requirements of

the Guidelines on Administrative Procedure of the Local Governments 2005 and provisions of

Section 50 of the Local Government Administration Law No. 7 of 1999.

The following observations noted in the course of the physical inspection are hereby referred

for your immediate attention and necessary comments.

2(a). BUDGETARY INFORMATION

ITEMS JULY TO DEC. ……. JAN. TO DEC ………

Estimated Actual Estimated Actual

Revenue

Recurrent Expenditure

Capital Expenditure

(b) CAPITAL EXPENDITURE INFORMATION

S/N ITEMS CONTRACT VALUE AMOUNT PAID BALANCE

OUTSTANDING

1. Completed projects

2. On-going projects

3. Abandoned projects

TOTAL

3. OBSERVATIONS ON PROCEDURAL ISSUES

i. TENDER AWARDS PROCEDURES

ii. BILL OF QUANTITIES

iii. CONTRACT AGREEMENTS


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iv. EXPENDITURE AUTHORIZATION

4. OBSERVATIONS ON PROJECTS INSPECTED

(a) HEALTH RELATED PROJECTS

A total sum of N…………………….. was expended on Health related projects, comprising

N………………….. incurred on Construction and Rehabilitation of Clinics N……………………,

on maternity centres, N………………… on procurement of health equipments and N……………

on provisions of drugs.

Observations …………………………………………………………….

(b) EDUCATION RELATED PROJECTS

The sum of N…………………… was spent on Education related projects which included

N……………… on construction and rehabilitation of schools, N……………………… on fencing

of primary schools N………………………. on vocational centres, N……………………… spent

on provision of educational equipments and materials while the sum of N………………… was

spent on free meal.

Observations …………………………………………………………….

(c) ENVIRONMENT RELATED PROJECTS

A total sum of N……………. was expended on environment related projects, consisting of

N……………………. on Beautification of Environment, N…………………. on Construction and

Maintenance of Drainages, N…..……… on De-silting of Drainages. While the sum of

N………………………, was incurred on culvert.

Observations …………………………………………………………….

(d) SECURITY & JUSTICE RELATED PROJECTS

Audit investigation revealed that the total sum of N……………… was spent on Security and

Justice related matters comprise N…………………. on construction and rehabilitation of

Customary Courts, N…………… on provision of police vehicles, N……………………….. was

incurred on Paramilitary agencies (such as Civil Defence, Neighborhood watchers, WAI & KAI

Brigades).

Observations …………………………………………………………….

(e) POVERTY ALLEVIATION RELATED PROJECTS

A total sum of N…………………….. was incurred in this sector.

This comprised of N……………………… expended on Grinding machine, farming, Dryer, Gari processing

machine, sewing Machines, N………………….. on Micro Finance credit programmes,

N……………………expended on disabled people.

Observations …………………………………………………………….

(f) WATER RELATED PROJECTS

The verification of projects under this sector showed that the total sum of N………………………. was

incurred. These include N…………………… on sinking and rehabilitation of Boreholes and

N…………………….. on provision of public water fountain.


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Observations …………………………………………………………….

(g) ROAD CONSTRUCTION/ROAD REHABILITATION

The Local Government/Local Council expended the sum of N………………. on Road Construction/Road

Rehabilitation. This consist of N…………………. on construction of new roads, and N………………… on

rehabilitation and Grading of Roads.

Observations …………………………………………………………….

(h) ELECTRIFICATION

The sum of N…………………… was incurred on electrification during the period under review. This

consisted of N……………… on procurement of generators, N……………… on installation and

Rehabilitation of street lights, N…………………… on provision of transformers and other electric cables.

Observations …………………………………………………………….

(i) COMMERCE

The Local Government incurred the sum of N…………………. on commerce. This consisted of

N…………………………. on construction of new markets, N…………………… on rehabilitation of old

markets and N…………………………. on construction of slaughter slabs.

Observations …………………………………………………………….

(j) SCIENCE AND TECHNOLOGY

The sum of N………………. was incurred on science and technology related projects. This consisted of

N………………… on purchase of computers and N………………………. on upgrading of information

technology in the Local Government.

Observations …………………………………………………………….

(k) COMMUNITY DEVELOPMENT

Audit investigation revealed that the Local Government or Local Council Development Area expended the

sum of N…………………….. on the community development. These consisted of N………………………….

spent on construction of Town Halls and N…………………………….. on purchase of vehicles for Obas

and Chiefs.

Observations …………………………………………………………….

(l) JOB CREATION

The sum of N………………, was incurred in direct and indirect job creation within the period under review.

This consisted of Nos of ………………………. and N…………………….. on numbers of indirect

employment of Technicians and Artisans employed in the course of execution of capital projects within the

Local Government or Local Council Development Area.

Observations …………………………………………………………….

(m) GENERAL ADMINISTRATION

Verification of projects in this category revealed that the Local Government/Local Council Development

Area spent the sum of N…………………….. on General Administration. This comprised

N…………………… on purchase of cars/vehicles, N………………. on motor cycles and

N……………………. on, installation of wireless internet system within Council Secretariat/offices.

Observations …………………………………………………………….

(n) SPORTING ACTIVITIES


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The sum of N………………….. was expended on sporting activities during the period under review. This

comprised N……………….. on construction of stadium and N ……………….. on Street soccer.

Observations …………………………………………………………….

(o) INSURANCE

The sum of N…………………… was incurred in this sector. This consisted N………………. on

comprehensive insurance on properties and N………………….. on employees life insurance.

Observations …………………………………………………………….

5. CONCLUSION

COMMENTS OR ANY CONTRARY OPINION TO THE ABOVE OBSERVATIONS SHOULD

BE FORWARDED TO THIS OFFICE WITHIN SEVEN (7) DAYS OF THE RECEIPT OF THIS

REPORT

6. Thank you

M. M. HASSAN Permanent Secretary/Auditor General


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Chapter 9

Staff and Pension Verification Validation

Exercises

Contents:

1. Introduction

2. Annual Staff Verification Exercise

3. Monthly Follow-up

4. Annual Report

5. Pensioners Verification Exercise

6. Annex A: Letter to Oracle to Stop Staff Salary

7. Annex B: Letter to Skye Bank to Block Bank Accounts

8. Annex C: Annual report of the staff verification exercise to the Head of Service

9. Annex D: Procedure for Data Audit and Financial Control Using Audit Command Language (ACL)

9.1 Introduction

Expenditure on staff salaries is a very significant part of the annual budgets of local

governments and local government education authorities. The major part of staff expenditure

is for pensionable staff paid by the State Government through its Oracle System. Payments

to local government staff is subject to special attention by the Office of the Auditor General for

Local Governments. This work is led and co-ordinated by the Salary Control Unit this consists

of five auditors including the head of the unit who is an Assistant Chief Auditor. This unit

undertakes the following work:

Monthly and annual salary verification/staff data revalidation for Local Governments and Local Government Education Authorities.


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Pre-audit review and certification of salary variations of Local Government Councils and Local Government Education Authorities with reference to nominal rolls, payrolls, HR data etc.

The annual staff verification exercise is undertaken in August/September each year. Follow-

up work is then undertaken each month.

Pensionable staff is usually paid in the first week of the following month, so they are paid their

salaries for October, for example, in the first week of November.

Non-pensionable staffs are monthly paid non-gratuitous staff who are paid directly by the

local governments. These payments are subject to audit during the quarterly audit verification

visits to each of the local governments and local government education authorities.

9.2 Annual Staff Verification Exercise

The annual posting for the staff verification exercise is prepared by the head of the salary

control unit in April or May of each year. The final list, signed off by the Auditor General, is

issued out by the first week in August at the latest.

There are seven Zonal Co-ordinators. These are audit staff from various directorates in the

Office of the Auditor General Local Governments.

The Team Leaders are auditors from various directorates in the Office of the Auditor General

Local Governments. They deal with three local governments (or local government education

authorities) for the whole year.

The team members for the exercise include:

Auditors from the Office of the Auditor General Local Governments

Officials from the Lagos State Ministry of Science and Technology

Officials from the Local Government Service Commission

SUBEB

Heads of education department from local governments.

The exercise usually takes one week for each local government or local government

education authority.

The procedures for the staff verification exercise:

i) Confirm the existence of the officials name on the payroll (the payroll for July is usually used)

ii) Confirm the existence of the officials name on the verification list (the nominal roll from the local government)

iii) Crosscheck originals of documents to details on human resource data

iv) Verify pay slip details to verification list


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v) In case of any doubt of the officials age and date of first appointment, call for the personal file from human resource (Local Government Service Commission-LGSC or SUBEB)

vi) Copies of verified documents are submitted to the LGSC or SUBEB representatives if further information or confirmation is required

vii) Cleared staff sign two (2) copies of the verification list:

one for the audit team

one for the LGSC or SUBEB representatives.

The following documents are to be presented by every staff member during the staff

verification exercise:

first school leaving certificate or another document showing attendance at primary school to authenticate the age claimed

first letter of appointment or other document confirming first appointment from the Local government Service Commission or SUBEB

last promotion/harmonisation or conversion letter

original and photocopies of credentials (staff identity card, qualification certificates (HND, degree certificate etc))

national identity card or other means of identification (drivers licence or passport)

payslips for the months of April to July for the relevant year

birth certificate or sworn affidavit of declaration of age.

The Human Resource Officer for the relevant local government or local government education

authority is to make the personal files available for their staff according to the Nominal Roll

arrangement.

9.3 Monthly Follow-up

Each month the Human Resource Officer for each local government or local government

education authority submits signed copies of the nominal role for their organisation to the

Office of the Auditor General for Local Governments. This report should be sent by the 10th of

the following month. If the Human Resource Officers do not send the reports on time then

their bank accounts may be blocked.

If staff are absent, without good reason, for three months then their salaries are stopped from

Oracle (see standard letter Annex A to this chapter) and the bank accounts where their

salaries are paid will be blocked (see standard letter Annex B to this chapter).

In the case of local government staff, details of their cases are sent to the Local Government

Service Commission for necessary disciplinary action, and the following are also informed:


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Chair of the relevant local government

Council Manager of the relevant local government

Human Resource Officer of the relevant local government.

In the case of teachers and other school based staff, details of their cases are sent to the

State Universal Basic Education Board (SUBEB) for necessary disciplinary action, and the

following are also informed:

Education Secretary, LGEA

Head of Personnel for the relevant local government education authority.

The four staff of the Salary Control Unit are assigned to the local governments and the local

government education authorities to monitor this work.

9.4 Annual Report

An annual report of the staff verification exercise is issued in early December to the Head of

Service in the State Public Service Office (see Annex C to this Chapter). The report for 2011

indicated that around 99% of staff were cleared and that nearly 600 staff had various issues.

These included a number of staff who had abandoned their duty posts, but were still being

paid their salaries and 23 staff who had falsified their ages to avoid retirement. In addition,

some staff were awaiting their retirement release letters from the Local Government Service

Commission and State Universal Basic Education Board (SUBEB), whilst pay points of others

have not been transferred to their current duty stations and so were still being paid from their

former post.

Relevant details are also reported to the Local Government Service Commission and the

SUBEB.

9.5 Pensioners Verification Exercise

1. Pre-audit of Gratuity and Pension of Local Government Retirees, Teachers and Non-

teaching Staff of primary schools in Lagos State. This is a pre-audit exercise undertaken by

the Auditor-General for Local Governments as prescribed in the Pension Act 102 of 1979.

o Routine examination of pensioners files - the files are treated in accordance

with pension circulars, salary scale and essential statutory requirements.

o Minor errors in computations are not queried rather they are corrected

manually by staff and certified for payment by the Head of Directorate

o Review of the treated files by the pension matters division so as to ensure

that it complies with essential statutory requirements.


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o Writing of queries on observations noted in pension files.

o Recommend and certify approved computations

o Certification of approved pension computation by the Head of the

Directorate.

o Approval of computations & dispatch by Auditor General/ Permanent

Secretary.

o Dispatch of Approved and queried files to Pension Board & LASPEC.

o Creation/updating of database in the computer system of all approved

pension and gratuity on a weekly basis by the database unit.

2. Statutory Bi-annual pensioner verification exercise “I am alive”.

Verification of pensioners

Monthly verification of new pensioners

Verification of pensioners seconded to LAWMA from local government councils.

Procedures for Pensioner Verification Exercise

i. The office and the Local Government Staff Pension Board jointly agree to the dates for the exercise.

ii. The Board communicates the dates to the Pensioners through radio and newspaper.

adverts.

iii. The pensioners assemble at an agreed place on dates assigned for each pay

point/local government.

iv. The pensioners are required to produce identity card, letters of appointment,

last promotion, retirement letter and four (4) passport photographs.

v. They are given printed verification form which is filled in triplicate, and to which they

affix passport photographs.

vi. The pensioner meets the verification team including a representative of the Board

and the Audit team.

vii. Where the pensioner is unable to get to the verification centre, the pensioner may

send proxy. In this case the pensioner should:

(a) Take a picture holding a current newspaper.

(b) The date of the newspaper must be visible.


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(c) The proxy should now fill the necessary forms and affix the pensioners

picture.

(d) The completed forms and the Pensioners documents are presented to the

verification team.

viii. The name and other particulars of the pensioner is checked against the payroll.

Sometimes relevant questions are asked to confirm the genuineness of the pensioner

being verified. Where the audit is satisfied that the pensioner is genuine the forms are

signed by both the auditor and the Board representative.

ix. The verified pensioner takes the white copy of the signed form. The auditor and the

Board representative retains the blue and yellow copies respectively.

x. At the end of the exercise, the forms are collated and the names of pensioners who did

not participate in the exercise are removed from the payroll.

xi. The collated figure is reconciled with that of the Board.

xii. A report is thereafter prepared and submitted by the Head of the Pensions Directorate to

the Auditor-General for approval.

xiii. The approved report is sent to the Board.

xiv. Where a pensioner is unable to participate during the screening. The Board makes

arrangement for them to register at the Board and they are verified at later dates.


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ANNEX A

Letter to Oracle to Stop Staff Salary

Permanent Secretary/Auditor General 16th May, 2012 The Accountant General/Permanent Secretary,

State Treasury Office, Ministry of Finance, The Secretariat, Alausa – Ikeja. ATTENTION: DIRECTOR CPDVD DELETION LIST Above subject matter refers 1. Find attached request for deletion from payroll received from various Local Governments, Local Council Development Areas and Local Government Education Authorities in respect of their staff that had left the service by retirement and death. 2. I hereby recommend that the names on the attached list be deleted from the payroll immediately. 3. Thank you. M. M. Hassan Permanent Secretary/Auditor General


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DELETION FOR THE MONTH OF NOVEMBER 201X

Name Oracle no. Account no. Local Government Reason

1 Mrs. Xxxxxx Xxxxxx 15808X 1XXXX10036899 Xxxxx LGEA SUBEB RETIRED

2 Mr. Yyyyyyy Yyyyyyy 18834Y 1XXXX10041380 SKYE BANK PLC. (SK) DECEASED

3 Ms. Zzzzz Zzzzzzz 12370Z 1ZZZZ10043059 Zzzzzz LGEA SUBEB DO NOT PAY


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ANNEX B

Letter to Skye Bank to Block Bank Accounts

4th May, 2012.

The Manager,

Skye Bank Plc,

Creek Road,

Apapa,

Lagos.

REQUEST FOR THE STOPPAGE OF OPERATIONS OF SALARY

ACCOUNTS

This is to request for the blocking of the salary accounts of the under

stated Staff of Ajeromi Ifelodun Local Government Education

Authority, whose existence in the service of Lagos State Government is

being investigated.

S/N NAME ACCOUNTNO

1. IBIKUNLE, Mr. ISMAIL OLANREWAJU

1611010050217

2. ADEOGUN, Miss MUIBAT ADUFE

1611010057005

3. OLAGOKE, Mr. ADETOLA JOHN

1611120000729

2. Further still, you are directed to stop further payment from the

accounts until you are informed otherwise.

3. Thank you.

M. M. HASSAN

Permanent Secretary/Auditor General


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ANNEX C

Annual report of the staff verification exercise to the Head of Service

7th February 2012

The Head of Service Office of the Head of Service Public Service office The Secretariat, Alausa-Ikeja RE: 2011 SALARY VERIFICATION EXERCISE RENDITION OF VITAL STATISTICS AND OBSERVATIONS IN RESPECT OF 57 LOCAL GOVERNMENTS/LOCAL COUNCIL DEVELOPMENT AREAS AND 20 LOCAL GOVERNMENT EDUCATION AUTHORITIES Following the successful conduct of the salary verification exercise in the twenty(20) Local Governments, Thirty Seven (37) Local Council Development Areas and the Twenty (20) Local Government Education Authorities of the State by this Office, this is to convey the under listed statistics in respect of the workforce of the above-mentioned institutions of the State based on the July, 2011 Oracle payroll used for the verification exercise.

S/N NAME NO OF STAFF ON PAYROLL

NO OF STAFF NOT CLEARED

NO OF STAFF CLEARED

GROSS SALARY CLEARED

NET SALARY CLEARED

1 Local Govts/ Local Council Dev. Areas

26,169 225 25,944 1,123,592,715.17 733,395,876.79

2 Local Government Education Authorities (1,129 Primary Schools)

26,403 361 26,042 1,622,890,825.25 1,157,130,363.32

TOTAL 52,572 586 51,986 2,746,483,540.42 1,890,526,240.11

Also attached are the schedules of number of schools and number of staff per Local Government Education Authority and the breakdown of the above summary per Local Government. 2. As it was with the previous years’ verification exercises, efforts are presently on-going with Skye Bank branches in the sphere of recovering undue salaries already paid to retirees, deceased, abscondees etc who were not cleared during the verification exercise. Details of the total amount recovered will be commmunicated to you alongside documentary evidences as soon as we are through with the recoveries.


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3. In the course of this year’s verification exercise, the following issues that were establishment matters came up. (i) AGE FALSIFICATION Physical verification of the birth certificates and sworn affidavits of age declaration and letters of appointment of staff of Local Governments and Local Government Education Authorities revealed that some members of staff have stayed in service beyond the statutory age of 60 years and 35 years length of service. Some of these staff falsified their ages by changing their dates of birth. However, further verification of their First School Leaving Certificates and their personal files revealed their actual ages contrary to what was presented to audit (see Annexure I attached for details). It is therefore suggested that a comphensive data validation for staff in the Local Governments and Primary Schools Teaching and Non Teaching Staff be carried out by the Office of Auditor-General for Local Governments to ensure that people who are no longer productive do not elongate their stay in the servive through age falsification. (ii) ABSCONDEES It was also revealed during the exercise that some staff who abandoned their duty posts for more than one year often found their way back into the system by seeking re-instatament citing various reasons for their absence. Since no disciplinary action was taken against such staff, they always scale through getting re-instated (see Annexure II for details). The Commission and SUBEB have been advised to institute appropriate disciplinary action on abscondees on grade levels 07 and above while also directing the respective Local Government Councils on Grade Levels 01-06 and copies of such actions should be forwarded to this office for our further action. (iii) RETIREES The staff verification exercise also revealed that some of the retirees stayed beyond their terminal dates on the basis that they were still awaiting the Commission’s approval of their retirement and the letter of release. Both the Commission and SUBEB have been advised to expedite action on retirement notices in order to forestall further loss of Government funds in this regard. Some retirees got paid beyond their terminal dates while waiting for the Commission’s letter of release. (iv) TRANSFERS It was also observed that some staff still draw salaries from thier previous Local Governments several months after they have been transfered to other Local Governments and Local Government Education Authorities. In some cases, the Local Governments from which a staff was transfered present such name for deletion from its payroll knowing that such staff has been transfered out for a long period of time. This at times created a wrong impression that such staff was a ghost or may be collecting money from the two Local Governments. The Commission and SUBEB have also been advised to always forward copies of transfers to this office for prompt action on the oracle salary payroll system. 4. Above Statistics are for your information and further details and breakdown of the above summaries are attached for your perusal. It will also be appreciated if the above


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mentioned establishment issues are appropriately reviewed in line with establishment procedures. 5. Thank you. M.M. HASSAN Permanent Secretary/Auditor-General


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SCHEDULE OF FALSIFIED AGES OF STAFF

No Name Location Oracle

No

Date of

Birth

Date

of

FSLC *

Years of

service

GL Remarks

1 Xxxx Xxxxx LGEA 1X2926 01/03/49 1958 32yrs 13/2 62yrs old multiple birth

dates. See attachment 1

2 Yyyy Yyyyy LGEA 1Y5114 17/06/50 - 11yrs 4/2 61 yrs old double birth

dates. See attachment 2

3 Zzzz ZZzzzzLGEA 1Z4660 05/12/49 1961 41 yrs 13/2 62 yrs double birth dates.

See attachment 3

4 Xxxxxx Xxxxx LGEA 1X8536 15/05/52 1961 16 yrs 3/2 Conflict btw FSLC and age

affidavit. See attachment 4

5 Yyyyyyyy Yyyy LGEA 1Y7544 07/01/50 - 11 yrs 3/2 Conflict in ages in record

of service filled and

affidavit 07/02/1956. See

attachment 5

* FSLC - First School Leaving Certificate


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Annex D

PROCEDURE FOR DATA AUDIT AND FINANCIAL CONTROL USING AUDIT COMMAND

LANGUAGE

- PLAN YOUR PROJECT

- ACQUIRE THE DATA

- ACCESS THE DATA

- VERIFY THE INTEGRITY OF THE DATA

- ANALYSE THE DATA

- REPORT YOUR FINDINGS

PLAN YOUR PROJECT

i. Decide on your objective

ii. Plan the best way to acquire the data

iii. Identify the data files, records and fields you need

iv. Request data in your preferred format: Flash, CD, ODBC (i.e. Open, Data, Base, Connectivity)

v. Create ACL Project

vi. Use commands and functions to explore data

Vii Ensure you confirm your finding with those who can verify them.

ACQUIRING DATA

- Where is the source data? Server? PC e.t.c

- Identify who is in charge of your data

- Receive permission and acquire the data.

ASSESSING YOUR DATA

- Create or open ACL project file

- Follow ACL Data Definition Wizard

- Inform ACL where to locate your file

- ACL will bring the file into view

VERIFYING THE INTEGRITY OF YOUR DATA

- Use count, total, verify commands

- Ensure your files contain correct number of records

- The numeric totals match the control totals

ANALYSING YOUR DATA

- Use Global commands, Local fitter e.t.c.

- Relate files, join files and merge files

- Index files, Sort files and use ACL scripts

REPORT YOUR FINDING

- EXPORTING Reports to Excel

- Present reports.


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Annex E

14th February, 2011

The Chairman,

Local Government Staff Pension Board,

Works Yard,

Ikeja

REPORT 2010 PENSIONERS VERIFICATION EXERCISE

The Verification of pensioners paid by the Local Government Staff

Pension Board has been carried out. The exercise was conducted

between 30th November to 13th December, 2010. A supplementary

exercise was done in 22nd December, 2010 to take care of pensioners

who were unable to participate in the first exercise.

2. VERIFIED PENSIONERS

Out of the 11,974 pensioners listed on the payroll, a total of 10,255

were cleared for a sum of approximately N198,000,000. as

summarized below. (See schedule I for details on payroll attached).

LOCAL NO ON AMOUNT ON NO. NO.

GOVERNMENTS PAYROLL PAYROLL CLEARED AMOUNT UNCLEARED AMOUNT

AGEGE 730 15,315,903.21 638 13,473,850.34 92 1842052.87

AJEROMI IFELODUN 408 10,267,302.22 364 9,725,722.73 44 541579.49

ALIMOSHO 512 12,224,193.09 464 11,493,443.44 48 730749.65

AMUWO ODOFIN 412 7,175,539.06 348 6,278,989.06 64 896550


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APAPA 354 5,805,859.81 318 5,421,090.69 36 384769.12

BADAGRY 346 5,257,372.88 310 5,078,990.10 36 178382.78

EPE 532 9,496,690.43 464 8,750,589.53 68 746100.9

ETI OSA 688 9,819,470.69 540 8,624,238.92 148 1195231.77

IBEJU LEKKI 109 1,891,043.47 100 1,818,942.67 9 72100.8

IFAKO IJAIYE 260 5,305,274.55 232 4,984,534.50 28 320740.05

IKEJA 757 13,112,998.64 633 11,696,590.59 124 1416408.05

IKORODU 615 12,139,461.37 553 11,329,816.05 62 809645.32

KOSIOFE 469 8,707,501.99 411 7,965,224.55 58 742277.44

LAGOS ISLAND 1013 14,219,993.60 840 12,747,868.94 173 1472124.66

LAGOS MAINLAND 935 15,724,851.92 691 12,691,622.15 244 3033229.77

MUSHIN 1179 20,531,871.02 1019 18,718,429.07 160 1813441.95

OJO 392 8,237,064.47 354 7,832,829.37 38 404235.1

OSHODI ISOLO 520 11,149,468.41 473 10,631,957.16 47 517511.25

SOMOLU 736 14,037,262.59 629 12,905,489.06 107 1131773.53

SPEB 10 130,693.94 7 112,780.43 3 17913.51

SURULERE 997 17,483,112.30 867 15,754,476.45 130 1728635.85

11974

218,032,929.66

10255

198,037,475.80

1,719

19,995,453.86

3. NEW PLACEMENTS

In addition to the above, Two Hundred and Twenty Five (225)

pensioners whose pension computations were approved or had attained

the pensionable age of 45 years since the last verification exercise were

cleared for placement on the payroll. The total amount involved is

N6,983,521.02 monthly. See schedule II for details.

4. OMITTED MONTHLY PENSION ON THE PAYROLL

It was observed that amounts of monthly pension were not indicated

against twenty-eight (28) verified pensioners in the hard and soft copies

submitted by the Board to this office. The Board is advised to produce

their approved pension computation and files in order to ascertain their

monthly pensions. See schedule III attached for details.


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5. REINSTATEMENT OF OLD PENSIONERS

The figures above exclude pensioners whose names were deleted after the

2008 verification exercise but have now showed up for reinstatement. The

Internal Auditor of the Board, who handled the preliminary investigation of

these cases, is yet to conclude the task as at the time of this report.

Whenever the report is presented it will be processed.

6. CONCLUSION

From the foregoing the total monthly pension payable is

N205,020,996.82 (New placement inclusive).

However, Pensioners who were unable to participate in the verification

exercise may be screened at a later date fixed by the Local Government

Staff Pension Board. This date should be communicated to this office as

soon as possible.

7. Thank you.

M. M. HASSAN

Permanent Secretary/Auditor-General


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Chapter 10 Preventing, Detecting and Reporting Fraud

and Illegal Acts 10.1 Definitions

Fraud can be defined as: "deceit, trickery, ... intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right". Simple errors or mistakes do not constitute fraud. Fraud is characterised by intent to falsely represent or conceal material facts. Therefore Fraud is intentional distortion of financial statements or records by persons internal or external to the authority which is carried out to conceal the misappropriation of assets or otherwise for gain. Fraud is a deliberate act by an individual or group of individuals and is, therefore, always intentional and dishonest.

Corruption can be seen as the offering, giving, soliciting or acceptance of an inducement or reward that may influence the action of any person.

All tiers of government, as well as the private sector are susceptible to fraud and corruption.

10.2 Preventing Fraud

The Financial Memoranda is the instrument by which controls are established in local governments. The Financial Memoranda ensures that it is not possible for one officer to initiate a transaction and see that transaction to conclusion, not only to the point of payment but also to the point of recording the transaction in the cashbook. It will thus take collusion of at least two officials for any fraud to take place. However, a high level of detection should act as deterrent and thus prevent fraud as much as possible.

The Fraud Environment

The environmental factors that will allow fraud to occur fall under two main categories, operational and personal.

Practical examples are:

Operational factors:

Lack of a robust control environment

Staff required to carry out duties which exceed their capabilities

Staff shortages at management levels.

Personal factors

Personal financial difficulties

Personal character traits

Pressure/coercion exerted by a third party.

Both operational and personal factors usually need to be present before fraud occur.


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Another way of looking at this is:

means + motive + opportunity = fraud Means = knowledge of job/systems in operation Motive = personal circumstances of the employee Opportunity = operational/control weaknesses.

Types of Fraud

There are an infinite ways of committing fraud, but all frauds actually fall into one of only three different, basic types:

Employee fraud. Such frauds are committed by an employee of the local government , either against the authority for direct benefit, or, by virtue of their position, against third parties, e.g. clients, to whom they have a duty of care.

External fraud. These are committed by 'outsiders' via the deliberate misinterpretation of information for gain, or as a result of the recognition and exploitation of weak systems.

Corruption. This would arise where an Officer and/or political office holder obtains benefits indirectly as a result of fraud executed or facilitated for the direct benefit of a third party.

Areas Carrying a Potentially Higher Risk of Corruption

Whilst the potential for corrupt practice is present over the full spectrum of activities in any authority, certain areas of activity are, by their very nature, generally accepted as being of 'higher risk' of exposure to corruption. These areas include:

The tendering and awarding of contracts

The settling of contractors' final accounts/claims

The appointing of, and/or the determination of the remuneration of, outside consultants

The appointment or posting of staff

The external, pecuniary interests of members/officers

The acceptance of hospitality

The awarding of licences, planning consent, land valuations, etc

Purchasing arrangements - exposure to pressure selling.

10.3 The Responsibilities of Auditors

Whilst it is recognised and accepted that the primary responsibility for the maintenance of sound arrangements designed to prevent or detect fraud and corruption rests with management, it is still an inherent responsibility of every auditor to be aware of the potential for fraud in the ongoing conduct of their duties.


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Fraud and/or corruption can, and indeed does, occur across the full spectrum of audit work. It is vital, therefore, that auditors remain constantly alert to the potential for fraud, regardless of the type of audit being undertaken. To discharge this requirement, it is essential that all audit staff have:

A complete and up-to-date knowledge of the main systems controls which, if breached or fail to function effectively, might increase the potential risk of fraud and/or corruption

Enquiring skills with a capacity for lateral thinking.

Once the Office of the Auditor-General for Local Governments has actually received an allegation, the following steps should be followed:

The Auditor-General will assign an auditor to conduct the investigation. The auditor will review all available information and documentation without breaching confidentiality to obtain an understanding about the charge, department, and personnel (see the next chapter for further guidance).

The auditor will identify possible audit approaches to investigate the allegation and discuss with Director of Evaluation and Reporting.

If there is a detection of fraud, waste, and/or abuse, the Auditor-General will send the report to the Public Accounts Committee.

The Auditor General for Local Governments can recommend intervention of the police.

The Office of the Auditor General for Local Governments will prepare a draft of the investigation with supporting working papers.

The final report is sent to the Executive Committee of the Local Government. If the report contains findings that suggest the need for disciplinary action, appropriate steps should be taken to ensure that recommended salary deduction is implemented and in case of termination, that appropriate actions are taken to update payroll records.

10.4 Summary

Fraud investigations are very sensitive. All information concerning the allegation(s) must be protected and kept confidential. The legal rights of any party involved must also be protected. Continual and timely communication with the Public Accounts Committee (Local) and Executive Committee of the local government is essential to effectively perform fraud investigations.

The auditors in the Office of the Auditor General for Local Governments should have sufficient knowledge to identify the indicators of fraud but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud.


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10.5 Whistle Blowing Policy and Procedure

In view of the policy of the Federal Government on the fight against corruption and corrupt practices, the Office of the Auditor General for Local Governments should seriously consider the formulation of a whistle blowing policy to encourage and help employees who have major concerns over any wrong-doing within local governments and other departments within its jurisdiction, relating to unlawful conduct and financial malpractice. Specific examples could include:

A criminal offence (e.g. fraud, corruption or theft) has been/is likely to be committed.

A miscarriage of justice has been/is likely to occur.

Public funds are being used in an unauthorised manner.

The local government guidelines (including Standing Orders, Financial Memoranda etc) have or are not being observed or are being breached by member and/or officers.

Any other form of improper action or conduct is taking place.

Information relating to any of the above is being deliberately concealed or attempts are being made to conceal the same.

Complainants should be able to raise their concerns about such malpractice(s) at an early stage and in the right way. It is better that matters are raised when they are just a concern rather than waiting for concrete proof. The Whistle-blowing policy is primarily for concerns where the interests of others or of the organisation itself are at risk.

Aims Of The Whistle-blowing Policy should be:

Encourage employees to feel confident in raising serious concerns and to question and act upon their concerns

Provide ways for employees to raise those concerns and get feedback on any action taken as a result

Ensure that employees get a response to their concerns and that they are aware of how to pursue them if they know what to do if they are not satisfied with any actions.

Reassure employees that if they raise any concerns in good faith and reasonably believe them to be true, they will be protected from possible reprisals or victimisation.

Whistle blowing is not intended to be used where other more appropriate procedures are available, for example:

Grievances

Harassment

Complaints of misconduct against Councillors


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10.5.1 Who Can Make a Complaint?

All local government employees may use this policy.

Contractors working for the Council may also use the provisions of the policy to make the local government aware of any concerns that the contractor's staff may have with regard to any contractual or other arrangement with the local government. The private concerns of the contractor relating to non-council business should be raised with the relevant contractor and/or other suitable agency/regulator - including the police, if appropriate.

10.5.2 What Assurance To Give To Complainants?

Complainants should be confident that If they do raise a concern under the policy, they will not be at risk of losing their jobs or suffering any form of retribution as a result, provided that:

The disclosure is made in good faith

The Complainant reasonably believes that information, and any allegations contained in it, are substantially true

You are not acting for personal gain.

The policy should not tolerate the harassment or victimisation of anyone raising a genuine concern. However, it should be recognise that the complainant may nonetheless want fo raise a concern in confidence and that must be provided for under the policy. If complainants ask for their identity to be protected by keeping their confidence, disclosure should never be done without their consent. If the situation arises where the concern cannot be resolved without revealing the identity of the complainant (for instance because their evidence is needed in court), the situation should be discussed with the complainant whether and how to proceed.

If identity is withheld by the complainant, it will be much more difficult for the concern to be looked into or protect the complainant's position or to give feedback. Accordingly, anonymous reports may be considered, it is important to appreciate that the whistle blowing policy is not well suited to concerns raised anonymously.

To obtain protection, employees must first disclose the information to the Office of the Auditor General for Local Governments.

10.5.3 How Should An Employee Raise A Concern?

As soon as there are reasonable grounds for concern, the complainant should write to the Office of the Auditor General for Local Governments giving:

The background and history of the concern giving relevant dates

The reason why they are particularly concerned about the situation

Details of any physical evidence in their possession including photocopies which may be attached

Indication of whether or not the report should be treated in confidence

Indication of whether or not the complainant has any personal interest in the matter


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10.5.4 How to Respond

Where there is the request for the report to be treated in confidence, the limit of that confidence will be checked out by the person receiving the information. The Auditor General for Local Governments will set up a team to do preliminary investigation into the veracity of the content of the report for the purpose of corporate recording and monitoring purposes. The team will determine what action should be taken. This may involve an internal inquiry or a more formal investigation. The Complainant should be informed of who may be handling the matter, how he/she can be contacted and whether complainant's further assistance may be needed. It is reassuring to the complainant if they are sent written summary of their concern(s) and proposal for handling it.

While the purpose of the policy is to enable the Office of the Auditor General for Local Governments investigate possible malpractice and take appropriate steps to deal with it, as much feedback as properly possible should be given to the complainant. It IS not necessary to tell the complainant the precise action to be taken where this would infringe a duty of confidence owed by the Office of the Auditor General for Local Governments to someone else. If urgent action is required, possibly to mitigate the situation, this will be taken before any investigation is conducted.

Where appropriate, the matters raised may:

Be investigated by the Executive Committee of the Local Government or internal auditor of the Local Government.

Be referred to the police, ICPC or EFCC

Form the subject of an independent inquiry.

Within four weeks of a concern being raised, the person looking into the concern should write to the complainant acknowledging that the concern has been received and:

Indicating how the Office of the Auditor General for Local Governments propose to deal with the matter

Giving an estimate of how long it will take to provide a full response

Saying whether any initial enquiries have been made

Supplying information on support available to the complainant

Saying whether further investigations will take place and if not, why not.

For the avoidance of doubt, the Concerns Register - along with any annual reports referred to above - will be available for inspection by the State Auditor-General, after removing any items that have been requested by the employees to remain confidential.

Subject to any legal constraints, the complainant will normally be informed of the final outcome of any investigation.

10.5.5 Safeguards for the Employee

The Office of the Auditor General for Local Governments will not tolerate any harassment or victimisation (including informal pressures) and will take appropriate action to protect those who raise a concern in good faith.


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Any investigation into allegations of potential malpractice will not influence or be influenced by any disciplinary procedures already taking place concerning the employee complainant.

No action will be taken against anyone who makes an allegation in good faith, reasonably believing it to be true, even if the allegation is not subsequently confirmed by the investigation.

Every effort will be made to ensure confidentiality as far as this is reasonably practical.

Help will be provided to employees in order to minimise any difficulties, which may be experienced. This may include advice on giving evidence if needed. Meetings may, if necessary be arranged off-site with the complainant.

The policy will be reviewed, prior to the start of each fiscal year, by the Monitoring Officer and the Auditor General for Local Governments so as to ensure its continuing effectiveness.

10.6 Recording & Monitoring

The Office of the Auditor General for Local Governments will ensure it has sufficient internal arrangements to address the requirements of the policy and shall ensure that a responsible official (Monitoring Officer) is sufficiently trained and developed to implement this policy. Depending on how employees respond to this policy, it may become necessary for the Auditor General for Local Governments to request for the appointment of a Legal Officer who will maintain a Concerns Register containing all concerns that are brought to attention. Monitoring Officer will review the Concerns Register and produce an annual report for the Public Accounts Committee. The report will not mention any employees, only the concerns raised, the number of such concerns, which department they relate to, the post against which the concerns were related to (if not confidential) and flagging up any lessons arising from the same so as to ensure:

local governments or other relevant departments do not repeat any concerns found against it

A consistency of treatment across local governments.


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Chapter 11

Special Audit and Investigation

11.1 Introduction

From time to time, the Office of the Auditor General for Local Governments is called upon to carry out special audits or investigations into specific issues. These usually involve allegations of corrupt practices and misappropriation of funds. This chapter provides the guidelines and standards with which such assignments are conducted

Complaints and allegations in the press or in any of the legislative arms or government, anonymous tips from employees or others could all in their separate ways require to be adequately addressed by investigation. The techniques to be used in such cases are proactive because it is widely felt that the existence of a system of investigation in such cases is a significant deterrent to fraud and corruption.

11.2 Objective of a Special Audit or Investigation

The objective is usually to investigate cases of suspected fraud or misappropriation of funds and resources so as to prove or disprove the suspicions, and if the suspicions are proven, to identify the persons involved, support the findings with evidence and to present the evidence in an acceptable format in any subsequent disciplinary or criminal proceedings.

In such cases it is important to keep in view the following:

Working relations with the investigating and prosecuting agencies

Authorisation and control of the audit investigation

Documentation of relevant information and safeguarding all prime records pertaining to the case

Rules of evidence governing admissibility/authentication of records confidentiality

Evaluation of the evidence to assess whether the case is sustainable

Legal advice where appropriate

Reporting the findings in a manner that meets legal requirements.

Issues for consideration

Audits are carried out and reported within a framework which assumes that the top decision makers both at the political and civil service levels are responsive to the need for good governance and accountability, and therefore would act upon the audit findings which indicate that there was cause for concern in the adequacy and implementation of internal controls, and inevitably institute enquiries into instances indicative of fraud on the part of officials. In consequence, the role of the auditor has been limited to conducting audits on certain percentages of sampling applied in a uniform manner across local governments.

Audit against criteria of probity and compliance throw up instances of administrative actions that are not in conformity with prescribed standards. Often, without the mandate to seek third


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party evidence i.e. external corporate bodies and individuals who in one way or the other may be involved, either oral or documentary, it is not possible to prove illegal acts of employees. However, there are other Federal Government institutions such as ICPC and EFCC who are responsible for investigating fraud and corruption. Focus therefore could be more upon planning and executing audits with much greater emphasis on investigation and reporting such findings in a manner that places the onus for further investigation on the Executive Committee of the local government.

Some of the areas that could be considered are:

Audit Planning:

Audits could be planned to cover only a selected sample of areas based on an analytical review of accounts and results of past audits instead of blanket coverage of all council activities.

Scope of Audit:

Unless otherwise stipulated, audit should concentrate on regularity, probity and compliance issues. Performance related issues could be dealt with in specific performance reviews. The role of the Council Chair, Council Treasurer, Head of Human Resources and other Heads of Department are specified in the Financial Memoranda. The actual discharge of such prescribed duties could be examined and the implementation of prescribed controls evaluated, (see Chapter 3).

Relationship with investigating agencies

The rules for requisitioning records by the investigative agencies should be clearly understood by audit staff and management of LGAs. These issues could be addressed by joint seminars and inviting speakers to respective training institutions. The need for a set of orders laying down the prescribed procedures in an easily comprehensible manner, and circulating these widely could be considered.

Position of the Auditor in criminal investigations

There is a need to provide clear and binding instructions about the manner in which audit staff are required to provide information to the investigative agencies. Faced with the possibility of being questioned in a manner akin to that employed for suspects, audit staff may resent, and hence avoid, being involved in criminal proceedings. With the possibility of auditors conniving in fraud has to be kept in view, it is necessary to ensure that unless there is prima facie evidence to this effect, the auditor, including Internal Auditor, must be a part of the investigative team.

Training

It is necessary to provide formal instruction on fraud awareness, investigation and reporting. The planning of overall audit coverage and individual audits on the basis of risk analyses carried in accordance with existing global 'best practice' could be included in the curriculum for all management levels.

Fraud and Irregularity

The profile of fraud and corruption in both the public and private sectors continues to be high.

Fraud can be defined as any illegal acts characterised by deceit, concealment or violation of


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trust. These acts are not dependant upon the application of threat of violence or physical force. Frauds are prepetrated by individuals and organisations to obtain money, property or services; to avoid payment or loss of services; or to secure personal or business advantage.

Auditors do not all have the expertise to deal with cases of suspected fraud, corruption or other irregularity. When such a case is found or suspected, the Auditor must contact the Zonal Coordinator through the Team Leader. The Zonal Coordinator will decide what steps need to be taken. Other institutions, for example, the Fraud Unit at Police Force Headquarters, the EFCC etc should only be contacted with the permission of the Auditor General.

11.3 The Auditor’s Role

The responsibility for prevention and detection of fraud rests with management.

The Team Leader, in preparing audit plans, should ensure that high-risk areas are identified. High-risk areas include areas of high inherent risk, areas where controls are weak, areas typically exposed to fraud, computer fraud etc.

An auditor may discover fraud either through their audit checks, or from information received from management or ‘tip-offs’. Information concerning suspected fraud could be received by formal complaints, anonymous letters, telephone calls, through operating hotlines, or referrals from the external auditor. The auditor should get as much detail as possible, and also try and obtain the identities of informants, assuring them of confidentiality.

Management may come across areas where they suspect fraud, for example employees working while sick, or living beyond their means. Office of the Auditor General for Local Governments may have established a special telephone line for whistleblowers at local governments. This will allow key officers to report suspected fraud or other irregularities to the Office of the Auditor General Local Governments without having to provide their names or posts.

The auditor could usefully identify some signs, personal circumstances or organisational conditions, that could point to fraud, and therefore require more detailed examination, such as:

overspending against budget

unexplained items in suspense accounts

frequent late banking

altered petty cash vouchers and receipts

goods invoiced that are not normally purchased

employees who never take annual leave; also staff who constantly work outside normal working hours

employees’ personal financial problems

employees whose lifestyle is more extravagant than their salary would warrant

unusual concerns about visits by auditors


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someone who often breaks the rules and regulations - cutting corners may be a way of concealing fraud

complaints about member of staff from customers or employers

people who rule their subordinates with a ‘rod of iron’, and unnecessary anger, sarcasm or criticism, so they become too frightened to question anything

lack of effective internal controls

failure of management information systems

undocumented procedures

general laxity of attitude by management and employees towards security.

Once an investigation is completed internal audit may have responsibilities in relation to:

recommending improvements to systems

attendance at disciplinary hearings

attendance at Court.

11.4 Conduct of the Investigation

There is no standard procedure in investigating fraud. There are, however, standards of best

practice which should be observed in all such work. The objectives of most fraud

investigations are:

to prove or disprove the original suspicions of fraud

if proven, to support the findings by producing evidence

presenting that evidence in an appropriate format.

The organisation should have a laid down procedure to ensure that relevant personnel are

informed of the suspected fraud. These may include departmental heads, the chief executive,

internal and external audits and regulating bodies. If the fraud is significant the external

auditor should be informed.

There should be a clear policy on the involvement of the police. Good working relationships

with the local police, appropriate police fraud units and with other organisations working in this

area should be established. Protocols should be agreed with the police covering interviewing,

documentation and other key issues, a major one being the stages at which contact with the

police should be established.

Agreement should be reached on:

terms of reference and scope of the investigation

estimated target dates


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staffing resources

provision of suitable facilities - transport, cameras, mobile phones etc as may be required.

All investigations must be properly authorised; relevant information properly documented;

secrecy and confidentiality must be maintained. All original documentation which is material to

the investigation should be secured by the auditor at the earliest possible stage.

At some stage - initially, or during the investigation, suspension of the suspect may need to be

considered. This will ensure that evidence is not tampered with, and will also prevent any

undue influence by the suspect on the course of the investigation. The suspension is, of

course, without prejudice to the outcome of the investigation.

The investigation will involve gathering of evidence, and its evaluation. If there is a high

volume of detail and documentary evidence, it is preferable to take the strongest cases for full

and detailed appraisal, for example where a successful prosecution is most likely to be

secured.

11.5 Interviewing

Guidance notes on aspects of interviewing are attached at Annex A to this Chapter.

Interviews can be of two types:

to seek more information

interviewing suspects.

Potential suspects should normally be interviewed towards the end of the investigation.

Thorough preparation must always be done for interviews; questions to be asked should be

predetermined and written, but auditors must always be alert when to ask supplementary

questions. Leading questions should not be asked.

A caution (see Annex A from paragraph 40) should be issued to a person where there are

grounds to suspect that they may have committed an offence before any questions about the

offence are put. The auditor should not be in a position at the start of any suspect interview

where it would be required to issue a caution at the outset; if the suspicion for this was strong

enough to be necessary the case should normally be referred to the police. If there is a doubt

on whether a caution should be issued, it should be remembered that, without a caution, the

case will not be admissible in court.

Before conducting an interview, the auditor should consider:

the information needed; questions should, preferably, be prepared in advance of interview

arrange the time and place of the interview - preferably during normal working hours, but away from the interviewee’s normal place of work

who will be present - all interested parties should be represented, and preferably two auditors; the interviewee should be given the opportunity to be accompanied.


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At the interview itself:

one auditor should ask questions - and another person should take notes

it is vitally important to ensure that nothing is done that can be construed as duress by the interviewee

it is useful normally to begin by asking the interviewee to outline their understanding of their duties and responsibilities of the matter under review

ask supplementary questions where necessary

if at any time the auditor forms the opinion that they have reasonable grounds for believing that the interviewee has committed an offence, the caution should be administered

the auditor’s notes should be agreed, signed and dated by all present at the interview.

After the interview the following need to be considered:

suspension

informing the police

insurance

need for review of systems.


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Annex A

Interviewing

1. As the investigation develops there will be matters arising that can only be substantiated or clarified by interviews conducted by the auditor. These interviews will broadly fall into two main categories, firstly there may be a need to obtain more information of a factual nature and this can only be obtained by interviewing those people with the relevant knowledge. These people are more likely to be employees of the organisation but could be third parties who are willing to assist voluntarily with the enquiries. The second category will involve interviewing the suspect(s) with a view to ascertaining any knowledge of and involvement in the suspected fraud.

Fact finding interviews

2. Although the basic evidence in fraud investigation is more likely to be documentary it will normally be necessary to establish certain other facts either relating to those documents, other people, the application of rules/regulations, procedures in operation and/or specific events. This can be obtained from the testimony and recollection of others through fact-finding interviews which will generally be of a formal nature and comprise predetermined questions although other supplementary questions may be raised during the course of the interview. The questions should be designed to elicit the relevant facts from the interviewee and answers which enhance the auditor’s knowledge of the circumstances connected with the investigation. Leading questions (which indicate the answer which is anticipated) should not be asked. If predetermined questions are not used a checklist needs to be prepared to ensure that spontaneous questions cover all the necessary areas of the investigation. Depending on the scale and sensitivity of the investigation these interviews will normally be undertaken by two auditors, one of whom will take detailed notes of the answers given to the questions asked. It is important to ensure proper procedures are adopted in such interviews and they should generally be in line with the procedures set out later.

3. Where the interview is conducted with a third party outside the organisation certain additional matters need to be taken into consideration. Wherever possible a proper appointment should be made agreeing the arrangements. Where the interview takes place at a person’s private residence the auditor should ensure that the interviewee is aware of the auditor’s name and will carry an identification pass which will be shown on arrival. If the interviewee is an aged person it is sensible for the auditor to be accompanied by a social/welfare worker, who is known to the person. This is also important when the interviewee is female and lives alone and in these circumstances it is preferable that the interview be conducted by a female auditor where possible.

Interviews with suspect(s)

4. In general, interviews with potential suspects should be conducted towards the end of the investigation when the auditor has assimilated the available evidence and the examination of records and interviews with third parties and others has established, as far as possible, the veracity of the facts of the case. If the interview is carried out at an early stage where the auditor is working largely on personal suspicions then the interview becomes a fact finding interview with the possibility of a further interview being necessary. This could however enable the suspect to gain considerable insight


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into areas being covered by the investigation and be given an early opportunity to frustrate the investigation as previously mentioned.

Preparation for interviewing suspects

5. Thorough preparation should be undertaken for this type of interview. The auditor needs to understand and be fully conversant with all the details of the case and also have sufficient knowledge to introduce supplementary questions spontaneously, if appropriate, during the interview.

6. Lack of adequate preparation can leave the auditor in a position during the interview where the suspect puts forward facts or explanations which the auditor should have known in advance which will need subsequent verification. If this arises the auditor is in danger of losing control of the situation, providing the suspect with the opportunity to gain confidence and avoid the real issues.

7. In preparing for the interview with the suspect the auditor must study the evidence thoroughly and draw upon the strongest aspects of the case and with all the necessary supporting evidence. In formulating the areas to be covered and the sequence in which those areas should be dealt with the interview needs to follow a logical structure.

8. The auditor must be methodical in approach and ensure that where documents are connected with the suspected fraud and will subsequently be relied on in proving that fraud has occurred, that they are shown to the suspect at interview and accepted as valid, accurate and complete documents. It is preferable to seek this confirmation of such documents in total from the suspect in the initial stages of an interview when the suspect is not aware of the detailed suspicions of the auditor or the direction which the interview will take. All such documentary evidence so produced at interview should be given unique references which will clearly identify individual documents and which will be recorded in the question asked, for example “Would you examine this time-sheet dated 10/12/13 which I have referenced ABI. Is this the time-sheet which you completed for the week ended 10/12/13?” A positive answer to such a question, contemporaneously recorded, would be difficult for the suspect to refute at a later date.

9. The auditor may also find that where it is practically possible and where there is a substantial amount of documentation to be used at interview, that the questions to be asked at an audit interview are predetermined and written out in advance, one to a page, leaving adequate space for the answers to be inserted later. Supplementary questions may need to be inserted during the interview as a result of answers given by the suspect. If pre-determined questions are not used a checklist of points to be realised is the least that should be available.

10. Pre-determined questions serve several purposes:

the questions are asked in the most beneficial sequence and in the most appropriate form

the auditor taking notes of the answers given can concentrate on writing down the answers only

no area of the investigation is ‘missed’ from the interview as a result of the auditor being ‘side-tracked’ by the interviewee, and


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the overall interview time is reduced as the process is ‘speeded-up’.

11. Future disputes as to the conduct of the audit interview can be forestalled to some extent if a final question is included, as a matter of course to the effect, “Are you satisfied with the way in which this interview has been conducted?” An affirmative answer to such a question should preclude any complaints of duress, unfair treatment or denial of natural justice by the auditors being made by the interviewee at a later date.

Formulation of questions

12. The way in which questions are formulated is also very important and if certain basic principles are not followed the results may be disallowed at some future hearing or the maximum benefit will not be obtained by the auditor.

13. Firstly, and most important, there should be no leading questions. These are questions which contain the answer the questioner is looking for, eg “You do open the post on your own, don’t you?”

14. Questions should be kept simple and it is better to use several short questions rather than long involved ones. If a question is not understood it should be repeated.

15. Avoid multiple questions as these allow the suspect to choose which individual aspect of the question to answer and can be confusing, especially when a ‘yes’ or ‘no’ answer is given, as it is impossible to determine whether it is ‘yes’ or ‘no’ to all aspects, or one, or more.

16. It is useful to ask a question the correct answer to which is already known to the auditor as this type of question allows the auditor to determine whether the suspect is telling the truth.

17. There are two types of questions that are appropriate in different circumstances; these are closed questions and open questions.

18. Closed questions can be more appropriate in an interview of this nature as they establish specific points of fact and enable the auditor to probe single and specific facts. They may be used to obtain specific ‘yes/no’ answers or to identify a person, etc. An example of the first type would be “Are unofficial receipts issued?” and an example of the second type would be “Who authorises payments from petty cash?”

19. Open questions allow the suspect to explain matters in detail and may be useful in the right circumstances, particularly where the person is reluctant to answer. They can allow the auditor to lose control of the situation if they are widely used particularly where the suspect is talkative and wanders away from the nub of the question. Open questions begin with expressions such as, “Tell me about......”.

20. When asking questions relating to documents always refer to them by their usual description together with the unique identification number mentioned earlier. Where questions are asked about two related documents, for example, a correct one and an identical fictitious one, the fictitious document should be questioned first as the suspect will not be aware that the auditor possesses the correct one and will have committed


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an answer before the correct document is produced and therefore be unable to easily retract it.

21. In formulating questions for interview it is very important to ensure that the questions are constructed to elicit all information otherwise the auditor will find that only specific responses are made and these may not reflect the whole truth. Badly constructed questions can enable the suspect to be economical with the truth.

Other arrangements for the interview

22. In addition to preparing the actual questions for the interview, the auditor needs to make other arrangements in advance to enable things to run as smoothly as possible. Audit interviews should always be conducted in a formal manner and are best undertaken at a location away from the interviewee’s normal work place. There are several reasons for this:

the interview can be confidential

it reduces the embarrassment which the interviewee may feel, and

if conducted away from the suspect’s work place it will remove any advantage which the suspect may gain from being on home ground.

23. It must be remembered, however, that it is essential to ensure that adequate safeguards are adopted both from the point of view of the interviewee and the interviewer.

24. The interview should be arranged at a reasonable time of day (having taken into account the estimated time which will be required to carry out the full interview). Breaks from interviewing shall be made at recognised meal times. Short breaks for refreshment shall also be provided at intervals of approximately two hours, subject to the interviewing officer’s discretion to delay a break if there are reasonable grounds. As far as practicable interviews should take place in interview rooms which must be adequately heated, ventilated and lit. The interviewee should be given the opportunity to be accompanied if requested so advance warning will be necessary so that the requisite arrangements can be made. A person who wants legal advice may not be interviewed or continue to be interviewed until they have received it.

Conduct and structure of the interview

25. The interview should be conducted by a senior member of the audit team accompanied by another auditor whose duty will be to record contemporaneously the answers given by the interviewee together with any supplementary questions asked or explanatory statements made by either party. At the start of the interview both auditors should formally introduce themselves to the interviewee giving their names and positions. It is sensible for the auditor to explain at the outset the procedure to be followed and that if the interviewee does not wish to answer any question that fact will be recorded in the interview notes.

26. Formal note taking is perhaps the most common and acceptable procedure of recording the interview and the importance of the notes taken cannot be too highly stressed. The taking of good notes may in fact be the difference between success and failure in a subsequent disciplinary or criminal investigation. Where someone (this may be a trade union representative, a solicitor, or a colleague) accompanies the


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interviewee it should be clearly explained at the commencement of the interview that their role is that of an observer to see that the interview is conducted fairly and not to answer on behalf of the interviewee. These interviews are not part of the disciplinary process but are conducted by the auditor in order to seek out the facts.

27. In the case where an interviewee is not able to understand English or where the interviewing officer cannot speak or understand the language of the interviewee then an interpreter should also be present to record what takes place during the interview in the actual language which is used. (This record should then be formally certified as accurate and complete by the interpreter). Similar provisions will also need to be made when the interviewee is deaf and the auditor should contact the social services department of the local authority who should be able to provide assistance.

28. As part of the formal interview procedure it is useful to formulate a standard prefix sheet for use in all audit interviews, it should provide for these details to be recorded:

name of the interviewee

the place and date of interview)

details of any “friend” accompanying the interviewee

the matters being investigated, and on which the interviewee is to be questioned

the time of commencement of the interview, and

the details (ie names and positions) of the audit staff conducting the interview.

29. It is also recommended that this prefix sheet should incorporate a paragraph which sets out the auditor’s authority to conduct the interview and seek explanations and information from the interviewee. This can be read out to the interviewee and will assist in precluding any dispute and consequent delay which might otherwise arise over the right of the auditor to carry out the interview.

30. It is imperative that before, during and after the interview nothing is done in any way whatsoever which could be construed as duress to force the interviewee to answer in a specific way or even confess to an offence. An auditor tapping fingers on the desk could be interpreted as an act of duress and could bring the interview into question in any future court hearing.

31. The auditor should, however, always be alert to the behaviour/responses/reactions of the suspect.

32. It is worthwhile including a question in the interview which allows the interviewee to make any comments which they may wish to add and have recorded in the interview notes.

Interview notes

33. Audit interviews are normally recorded by the use of contemporaneous notes taken by a member of the audit staff as the interview proceeds. This process should be explained to the interviewee at the commencement of the interview.

34. Auditors are not trained shorthand writers and so cannot normally be expected to produce a complete verbatim record of the answers given at interview but the person taking notes should record the answers given as fully as possible. There is a danger that the note taker might disregard, or fail to record an apparently trivial statement made by the interviewee which is in fact of singular significance to the case, but which


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could not later be introduced as evidence if it is not recorded in the interview notes. To this end, where particularly complex investigations require such interviews it is perhaps appropriate that the person taking notes is fully conversant with the case in order to minimise the risk of any significant comment not being recorded. The recording of the interview fully and correctly is a vital aspect of the whole investigation, both from the point of view of the auditor and the interviewee. This applies whether or not the interview is being tape recorded.

35. Where an audit interview continues for any length of time, the offer of breaks and their acceptance, or refusal by the interviewee must be recorded, together with the relevant times in the contemporaneous notes taken of the interview. Any complaints raised by the interviewee should also be recorded in the interview notes.

36. When the interview has been completed, any sheets containing predetermined questions which were not asked, should be removed.

37. The interviewee should be invited to read the interview notes which have been taken and should be given the opportunity to make any additions, deletions or amendments which are considered necessary. When any such alterations have been made and the interviewee agrees that the notes are a complete and accurate record of the interview they should then be asked to sign each page of the interview notes and to initial any alterations which have been made.

38. Once this has been done, and in the presence of the interviewee the auditor who has taken the notes should:

consecutively number the pages of notes, eg 1 of 10 etc

cross through all blank spaces on the pages of notes to demonstrate to the interviewee that nothing can subsequently be added to the agreed interview notes

sign each page of notes, together with the auditor who has conducted the interview, and

enter on the last page of notes the time at which the interview ended.

Refusal of the interviewee to sign the notes taken

39. It may arise that an interviewee will refuse to sign the notes taken of the interview. The circumstances of the refusal should in those cases be noted on the last sheet of the interview notes, preferably in the presence of the interviewee, and the notes should be signed by the two auditors who conducted the interview. Under no circumstances whatsoever should the interviewee be pressured into appending a signature.

Cautioning

40. It is appropriate at this point to examine the circumstances of cautioning a suspect.

41. The objective of an audit interview is to establish facts and this applies equally to interviews with suspects in an investigation. It may well be that a suspect will provide


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apparently genuine explanations for the actions which have prompted the audit investigation, and which the auditor will subsequently need to follow-up and verify.

42. A caution should be issued to a person where there are grounds to suspect that they may have committed an offence before any questions about the offence are put. This is therefore an important consideration for the auditor when undertaking suspect interviews.

43. Even though an auditor may have accumulated substantial amounts of evidence during the investigation which could be seen as suggestive of the guilt of the suspect there may well be other possible explanations.

44. Having discussed the situation informally as previously suggested with the local police, the auditor should not be in a position at the start of any suspect interview where it would be required to issue a caution at the outset. If the suspicion were strong enough for that to be necessary the case should normally be referred to the police.

45. It is perhaps appropriate to help prevent any future dispute for the auditor to explain to the suspect at the outset of the interview that the purpose of the interview is to establish facts and obtain explanations. This statement should be fully recorded in the interview notes.

46. As the interview proceeds however, it may be that the answers given by the suspect, coupled with other evidence known to the auditor, give rise to clear grounds to suspect that the interviewee has carried out a fraudulent act or indeed the suspect may confess.

47. At this point, if the auditor is to avoid any evidence obtained from the interview ruled to be inadmissible in any subsequent criminal proceedings, the auditor may take one of two courses of action:

terminate the interview at that point and refer the investigation to the police for further action; or

issue a caution to the suspect, before proceeding with any further questioning.

48. The words to be used to give such a caution should be: “You do not have to say anything. But it may harm your defence if you do not mention when questioned something which you later rely on in court. Anything you do say may be given in evidence”.

49. The fact that the caution was given, the words used, and the time that the caution was given must be recorded in the interview notes. The interviewee must also be formally reminded that they are still under caution after any subsequent breaks in the interview and this must also be recorded and timed in the interview notes. Voluntary statements under caution

50. In certain circumstances the interviewee may not wish to answer any further questions but may wish to make a statement to the auditors. If the interviewee wishes to write out this statement personally then the statement should begin with this declaration:


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“I make this statement of my own free will. I understand that I do not have to say

anything but that it may harm my defence if I do not mention when questioned

something I which I later rely on in court. This statement may be given in evidence.”

This should be followed by the signature of the interviewee.

51. The interviewee should, on completion of such a statement, be invited to re-read what has been written and be given the opportunity to make any amendments before signing the statement.

52. Where the interviewee wishes to make a statement rather than answer further questions but wishes the interviewing auditor to write down what is said the statement should be prefixed as follows:

“I , wish to make a statement. I want someone to write down what I say. I understand

that I do not have to say anything but that it may harm my defence if I do not mention

when questioned something I later rely on in court. This statement may be given in

evidence.”

53. In these circumstances what is said by the interviewee must be recorded verbatim and upon completion the interviewee should be asked to read through what has been written, and should be allowed to make any alterations, additions or corrections. Any such changes must be initialed by the interviewee.

54. When the statement has been agreed the following certificate should be added, at the end of the statement, by the interviewee:

“I have read the above statement, and I have been able to correct, alter or add anything I wish. This statement is true, I have made it of my own free will”.

55. This certificate should then be signed by the interviewee. Offers of resignation/restitution

56. If during the course of an interview the interviewee offers to resign then the auditor should not accept it but should refer the individual to the manager/personnel officer and record the offer in the interview notes. Auditors should not accept money in restitution of an offence at interview as it may be construed as being obtained under duress and legal advice should be taken afterwards. It is appropriate for any offer of restitution to be incorporated in the interview notes. On no account should the auditor enter into any discussion on ‘doing a deal’ whereby the employee will pay restitution in order for the matter not to be referred to the police etc.

Other relevant areas

The use of audit notes as evidence

57. As a general principle evidence is essentially fact and not impressions or opinions formed or conclusions drawn.


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58. Throughout the investigation of any fraud, situations will occur and conversations take place which are material to the matter under investigation, for example, the content of a telephone call to an outside organisation to confirm or otherwise alleged events will be very important to the direction of the investigation. In any such situation any auditor involved must either at the time, or immediately afterwards make a formal note of what has taken place. The object of such notes is to assist the auditor to:

produce an honest and factual statement of evidence if subsequently required by the police or as part of formal disciplinary proceedings, and

refresh the auditor’s memory and bring all aspects clearly to mind should the auditor later be called on to give evidence either in a disciplinary or criminal hearing.

Rough notes made during conversations, etc

59. Occasionally the auditor will not be able to follow formal interview procedures when speaking to persons connected with an investigation as in some cases the person concerned will not be an employee of the organisation and the auditor has no authority to interview formally in such cases.

60. The evidence which these people have to give, however, may still be very material to the investigation and in such circumstances the auditor should record the contents of the interview as contemporaneous rough notes. These notes should be made in the manner most appropriate to the circumstances but should attempt to cover the essential facts disclosed.

61. As soon as possible after completion of the conversation the rough notes should be used by the auditor(s) to produce a full written note of what has occurred. These notes should be signed by the auditor(s), timed and dated, and where possible the rough notes attached. Notes made on this basis may be acceptable to the police in any subsequent criminal investigation.

62. Such notes are also generally accepted by the courts for use by a witness when giving evidence but the courts may, on occasion, rule that only the rough notes made contemporaneously may be used. It is therefore important that these notes be as detailed as possible and are retained intact. Conclusion of the investigation

63. Having conducted the interviews necessary to complete the auditor’s knowledge of the situation disclosed by the investigation the auditor must draw together all the evidence obtained from the investigations and formulate the conclusions based on all the evidence so that the audit report can be prepared.

64. At this stage the auditor must take full account of all their investigations in reaching their conclusions.

65. It is also important that conclusions are only based on fact. It may well be prudent to obtain legal advice from within the organisation before finally determining the conclusions of the investigation.


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The need to obtain legal advice on the evidence resulting from the investigation

66. In almost every fraud investigation some legal advice on the strength of the evidence obtained will be required. This may be:

as informal as an off the record discussion with a member of the organisation’s legal staff, or

a referral of a draft report for specific examination as to whether the evidence disclosed is strong enough to warrant referral to the police, or

a formal referral to outside counsel for advice both on the case and perhaps proper procedures for investigation/reporting when the culprit is covered by a detailed and specific nationally laid down disciplinary code.

67. It must always be remembered that the legal opinion obtained is purely that, an expression of opinion, and must not ever be regarded as definite and infallible prediction of the outcome of any investigation/criminal action. The opinion given can only be formed from the information available. Therefore any omissions or errors in that information, or subsequent discoveries (unforeseen when the information was provided) will effect the validity of the opinion which is drawn from the information supplied.

68. The following expressions are those generally used by the legal profession when giving an opinion on the strength of evidence, and can be interpreted as shown below:

“The evidence should be sufficient to support successful proceedings”

This can be taken as legal opinion that the evidence obtained should be more likely to

result in conviction of the culprit than in the acquittal.

“The evidence should be sufficient to support a prima facie case”

This can be taken to mean that the evidence disclosed is evidence of the essential

facts of the case which are required to undertake a prosecution but that there are

sufficient factors (which would normally be detailed in the opinion) to suggest that the

prosecution could fail.

“The evidence is not sufficient to support proceedings”

This is basically self explanatory in that it means that the evidence produced does not

prove one or more of the essential facts necessary to secure the conviction of the

culprit, for example obvious lack of creditability of some witness(es) or failure to

prove the connection between the fraudulent action and the culprit.

69. Such advice will normally detail the deficiencies in the evidence produced and where possible suggest what is required to remedy these deficiencies.


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70. In certain circumstances, although the evidence produced may well be sufficient to ensure prosecution there may be certain features, either of the case and its circumstances or the culprit which would make the case unlikely to succeed, and therefore to make the prosecution of the case contrary to the interests of the organisation. If such features exist, they should be brought to attention in any legal opinion obtained.

71. Such features include:

the serious ill health of the culprit

the “staleness” of the offence, and

the age or youth of the culprit.


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Chapter 12

Coordinating Audit Activities



Key relationships should be maintained with local government officials, especially the Council Treasurers and the Internal Auditors

The work of the internal auditors should be reviewed and considered when planning the audit

Cooperation may also be appropriate with other review agencies.

12.2 Relationship with management

The Auditor-General reports to the Public Accounts Committee (Local) of the State House of Assembly. The terms of reference are as stated in the Guidelines on Administrative Procedure of the Local Government (see Chapter 1). In performing its duties, there must be clear understanding of the role of the Office of the Auditor General for Local Governments by the management of local governments. It may therefore be necessary to conduct regular interactive sessions with relevant officers of local governments with whom auditors come in contact, especially the Council Treasurers and the internal auditors. The interactive sessions should be designed to inform the officers of the activities, observations, quality service advises and other audit related issues.

12.3 Relationships with Internal Auditors

Regular liaison meetings between the Audit Team and Internal Auditors should take place to help foster an effective working and professional relationship between the two.

These meetings should cover:

Joint planning arrangements

Agreeing arrangements for sharing files and information.


2.2.45 When the SAI uses the work of another auditor(s), it must apply adequate procedures to provide

assurance that the other auditor(s) has exercised due care and complied with relevant auditing standards, and

may review the work of the other auditor(s) to satisfy itself as to the quality of that work.

3.1.3 In planning an audit, the auditor should:

(g) review the internal audit of the audited entity and its work program;

(h) assess the extent of reliance that might be placed on other auditors, for example, internal audit;


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The Internal Auditor of the Local Government should have a prime responsibility to keep the Audit Team informed of planned and actual internal audit activities. Copies of their monthly or quarterly audit plans and reports should be submitted to the Office of the Auditor General for Local Governments.

The Team Leader should consider the quality of the internal auditor and any useful information that may be provided in their quarterly or monthly reports. The Team Leader should interview the internal audit to discuss these reports and other work of the internal audit during the audit inspection visit.

The Audit Team should ensure that enough information is obtained from local government Internal Auditors to have sufficient and adequate supporting evidence on file should external bodies such as ICPC and EFCC be interested in audit work performed the AGLG.

12.4 External Audit Firms

The relationship between Office of the Auditor General for Local Governments and external audit firms takes account of their differing roles and responsibilities. The Auditor-General is an independent appraisal function within the State Government. The external auditor has a responsibility to undertake the statutory audit of local government education authorities and other allied agencies.

The Office of the Auditor General for Local Governments provides these bodies with a list of registered audit firms and the fee rate for this work when they are appointing new external auditors every three years.

12.5 Inspectorate Division of the Ministry of Local Government

The Inspectorate Division of the Ministry of Local Government and Chieftaincy Affairs

undertakes periodic inspections of local governments in Lagos State. The Office of the

Auditor General for Local Governments should arrange for periodic meetings to liaise and co-

ordinate their work with this Directorate to minimise possible duplication of work.

The Inspectorate Division undertakes two areas of work:

Personnel and management structure reviews

Project monitoring – checking approval and progress with capital projects.

As a result of the second aspect of their work, the Inspectorate Division assists with the

annual completed capital project inspection exercise of the Office of the Auditor General for

Local Governments.

12.6 Relationships with Other Review Agencies

The Auditor General may have a dialogue with other review agencies or functions, for example the State Universal Basic Education Board (SUBEB). Similarly, other review agencies or functions, for example, EFCC or ICPC may request information or copies of audit reports. In these cases, the formal approval of the Auditor General for Local Governments is required to be obtained before information may be provided.


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Chapter 13 Professional Proficiency

13.1 Purpose of Chapter

This chapter gives general guidelines on the quality of staff expected in the Office of the Auditor General for Local Governments. The better trained the staff are, the better the quality of audit carried out will be. Thus the department needs to monitor the professional development of its audit officials.

Because of the disparity between pay in public sector and private sector, the Office of the Auditor General for Local Governments needs to offer adequate training opportunities to reduce the rate of staff turnover.

13.2 Auditor Proficiency

INTOSAI Standards specify that, audit engagements should be performed with proficiency and due professional care. INTOSAI Ethics (Chapter 5) state that:

Auditors have a duty to conduct themselves in a professional manner at all times and to apply

high professional standards in carrying out their work to enable them to perform their duties

competently and with impartiality.

29. Auditors must not undertake work they are not competent to perform.

30. Auditors should know and follow applicable auditing, accounting, and financial

management standards, policies, procedures and practices.

The Auditor General for Local Governments should therefore ensure that the technical proficiency and educational background of the Department's auditors are developed to become appropriate for the audits to be performed. Every effort should be made to provide a "blend" of experience, which will ensure that audit of individual units, are conducted competently and in compliance with International Audit Standards, as well as to foster the growth and development of the individual auditors.

13.3 New Audit Staff Training

Initially, a new audit staff should be introduced to the:

Organisation structure of the Office of the Auditor General for Local Governments

Procedural and administrative matters

Auditing standards and ethics

Department's audit staff and background of other staff members

Audit procedures and techniques using this manual; and

Expectations relative to performance.


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This manual can be used as part of the training for all new staff in the Office of the Auditor General for Local Governments. A copy of the audit manual should be issued to all new staff when they start in the office.

13.4 Continuous Professional Development of Auditors

Professional development is a joint responsibility between the staff and the Office of the Auditor General for Local Governments. The auditor is responsible for seeking the desired education or expertise based on his/her needs. The Office of the Auditor General for Local Governments organises a series of talks and seminars in the office for all auditors or selected auditors to attend.

13.5 Participation in professional associations

Team Leaders are required to be professional accountants and so have to be members of the Institute of Chartered Accountants of Nigeria (ICAN) or the Association of National Accountants of Nigeria (ANAN). Audit staff are given an incentive bonus of N20,000 when they qualify for either of these two professional accounting bodies.

Once audit staff are qualified professional accountants, they are encouraged to be active members of their association and so to:

Attend courses and seminars necessary for retention of a professional body certification

Attend courses and seminars that impact the auditor's audit specialty areas or broaden his/her understanding of operations

Read books, magazine articles, essays and journals that will broaden the auditor's understanding of management, auditing and related disciplines.

13.6 Training Programme

Directors in consultation with each member of audit staff should produce individual annual training plans. The main purpose is to ensure that all audit staff receive appropriate training and the practical experience.

In developing the training plan and strategy, audit directors should give particular attention to:

The quarterly audit work plans

The performance, skills and staff development interviews (counselling sessions)

Any individual staff objectives and their associated continuing professional development programme

Any relevant legislation and internal regulations especially those affecting limitation of promotion within the department

The training budget

The various sources of specialist training available

The State Government's corporate training strategy


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Any project work undertaken.


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Chapter 14

Standards and Guidance for Auditing

14.1 Introduction

The Office of the Auditor General for Local Governments has three main objectives and

approaches to its work:

Regulatory or compliance audit undertaken during the routine quarterly inspection audits at each local government. These are undertaken in accordance with the INTOSAI Auditing Standards.

Other audit work, for example, staff verification and inspection of completed projects. This work should also be undertaken in line with the INTOSAI Auditing Standards.

Financial audit which is undertaken to provide an independent audit opinion on the annual financial statements of each local government. This work is undertaken in accordance with the INTOSAI Financial Audit Guidelines.

The INTOSAI Financial Audit Guidelines provide guidance for conducting financial audits of public sector entities. The INTOSAI Financial Audit Guidelines include the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). In addition, they include Practice Notes (PN), these provide relevant guidance on applying each ISA during financial audits of public sector entities in addition to that provided in the corresponding ISA.

The Mission Statement and the Vision of the Office of the Auditor General for Local Governments is included at Annex A to this Chapter. The legal basis for the Office and details of related laws and regulations is included as Annex B to this Chapter.

14.2 Audit Standards

The Office of the Auditor General for Local Governments has to comply with the following standards:

The Auditing Standards and Code of Ethics published by the International Organisation of Supreme Audit Institutions (INTOSAI): http://tinyurl.com/intosai1

These standards cover:

The independence of auditors

Ethical Code

Staffing (including training)

Relationships (including those with other auditors)

Due care and attention

Planning


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Supervision & Review

Evaluation of the internal control system

Compliance with laws and regulations

Evidence gathering and collection

Reporting and follow-up.

14.3 Management and Organisation of Local Government Audit

The main legal basis for the Office of the Auditor General for Local Governments is the Lagos State, Public Finance Management Law, No. 7, of 2011 (see Annex B to this chapter for this and other legal provisions. The Guidelines on Administrative Procedures of Local Governments of 2011 stipulate in paragraph 80 that:

"the Auditor-General for Local Governments shall:

(a) Have power to carry out, on regular basis, the auditing of Local Government/Local Council Development Areas Accounts.

(b) Have power to sanction and surcharge any officer as stipulated in the Guidelines governing offences and sanctions. However, appeals against his decision lie with the Public Accounts Committee of the State House of Assembly.

(c) Be the Chairman of the local Government/Local Council Development Areas Accounts Audit Alarm Committee.

(d) Have access to the State Governor on Audit matters.

(e) Notify the Public Accounts Committee of the State House of Assembly of audit queries for which the accounting officer of the Local Government is liable or responsible. In addition, any other sensitive issue which because of its urgency, cannot wait until the Committee is convened, shall be dealt with by the Auditor-General for Local Government.

80.2 Audit queries shall be addressed to the Chairman and answered within the time limit stipulated in the new rules governing offences and sanctions.

80.3 Where the query ·concerns the accounting officer, it shall be answered by him in person. If the accounting officer does riot respond within the stipulated time to a query that affects his office, the Auditor-General for Local Governments may inform both the Finance and Appropriation Committee of the State House' of Assembly and the State Governor in writing.

80.4 Where failure to answer the audit query is by an officer other than the Chairman of Local Government, the Auditor-General for Local Governments shall impose, through the Local Government Service Commission, the necessary sanction or punishment on the erring officer who shall have the right of appeal to the Public Accounts Committee of the State House of Assembly.

80.5 The present periodic post-payment audit checks in Local Governments/Local Council Development Areas by Monitoring from the Ministry of Local Government and Chieftaincy Affairs shall continue. The Ministry shall have power to issue sanctions and or make audit alarms as and when necessary.

80.6 To ensure the effectiveness of audit functions, Local Governments/Local Council Development Areas entering into contract agreements shall henceforth include a clause enabling the Auditor-General for Local Governments have access to sites for purposes of auditing or monitoring contract performance.


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14.4 Objectives of the Office of Auditor-General for Local Government

Auditing standards prescribe that internal controls should be studied and evaluated in respect of safeguarding assets and resources when performing regularity and financial audits, and in respect of assisting management in complying with laws and regulations when performing compliance audits.

The objectives of the Office of Auditor General of Local Government (OAGLG) therefore are to:

Independently review and appraise systems of control throughout Local Governments/Local Council Development Areas, Assigned Agencies and their activities

Ascertain the extent of compliance with procedures, policies, regulations and legislation

Provide reassurance to the State House of Assembly that their agreed policies are being carried out effectively

Facilitate good practice in managing risks

Recommend improvements in control, performance and productivity in achieving local government objectives

Review the value for money processes within Local Governments and Assigned Agencies

Work in partnership with external auditors where such are appointed by the Auditor General for Local Governments

Identify fraud as a consequence of its reviews and to deter criminal activities.

In performing its duties, the Office of the Auditor General for Local Governments has unrestricted access to all local government records, cash, stores and other property, to obtain explanations as necessary, and to enter local government property or land. Such access shall be granted on demand and need not be subject to prior notice.

The Mission Statement and the Vision of the Office of the Auditor General for Local Governments is included at Annex A to this Chapter.

14.5 Responsibilities

The service of the Auditor General for Local Governments is not a substitute for effective internal control mechanisms, which remain the direct and sole responsibility of senior management of the local government. However, the Audit Team's specific commitments do include, but would not necessarily be limited to the following:

1. Examining and evaluating the adequacy of local government systems of internal control, including those pertaining to the deterrence, detection and investigation of fraudulent or illegal acts.

2. Reviewing the reliability and integrity of financial and operating information and the means used to identify, measure, classify and report such information.


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3. Reviewing the systems established to ensure compliance with those policies, plans, procedures, laws and regulations, which could have a significant impact on operations.

Reviewing the means of safeguarding assets and, as appropriate, verifying the existence of such assets.

4. Appraising the economy and efficiency with which resources are employed and the quality of performance in carrying out assigned responsibilities.

5. Programmes to ascertain whether results are consistent with established objectives and goals and whether the operations or programmes are being carried out as planned.

6. In meeting its responsibilities, the Audit Team's activities will be conducted in accordance with the State Government's strategic objectives and established policies and procedures. In addition, auditors shall comply with the INTOSAI Code of Ethics and the Standards of Audit.

14.6 Authority

The Lagos State Local Government Administration Law No. 7, section 49 of 1999, established the position of the Auditor General for Local Governments. His/her prime function is to ensure that Local Governments maintain adequate and effective system of audit of the accounting records and control systems. Any officer or Member of the local government shall, if required, make available such documents, which relate to the accounting and other records as appear to be necessary for the purpose of the audit, and shall supply such information and explanation as is considered necessary for that purpose. Auditor General for Local Governments exercises this degree of control through the medium of the Audit Team.

On that basis, therefore, Auditors have unrestricted access to local government records, cash, stores and other property, and may enter local government property or land, to obtain explanations. Such access shall be granted on demand, will not necessarily be subject to prior notice, and will also extend to external contractors, consultants or franchisees working for, or on behalf of, local governments.

One of the Audit tasks is to examine and carry out reviews of the Internal Audit arrangements in place within all Local Governments. Authority for the production and execution of the ‘Audit Plan' and subsequent audit activities rests with the Auditor General Local Governments.

The legal basis for the Office of the Auditor General for Local Governments and details of related laws and regulations is included as Annex B to this Chapter.

14.7 Organisation

The Office of the Auditor General for Local Governments is invested with the right to report its findings in its own name, and has the freedom of access to all level of officers. It is important for Audit Teams to be able to report 'without fear or favour'. In particular, the rights of access to the Local Government Chair and the Council Treasurer are important. In addition and where required, Auditors have the right of access to senior officials of external contractors, consultants and franchisees conducting functions for, or services on behalf of, the local government.


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Organisation Chart


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Corporate Governance

Auditors have an important role to play in the corporate governance arrangements of local governments. There is the need for high standards of conduct and probity.

These arrangements need to ensure compliance with the Financial Memoranda for Local Governments as may, be amended from time to time, all applicable statutes and regulations, other relevant statements of best practice and the need to ensure that public funds are properly safeguarded and are used economically, efficiently and effectively.

The reporting arrangements between the Office of the Auditor General for Local Governments and the Public Accounts Committee (Local) of the State House of Assembly should be clearly documented.


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Annex A

Mission Statement and Vision of the Office of the Auditor General for

Local Governments

Lagos State Government

Office of the Auditor General Local

Governments

Mission Statement

To Build a Pro-active Agency that is EFFICIENT,

EFFECTIVE and Capable of Meeting the High

Expectations of the Government and People of

Lagos State.

Vision

“Upholding Public Trust and Accountability”


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Annex B

Legal Basis for Audit in Local Governments

1. Constitution of the Federal Republic of Nigeria, 1999

2. Lagos State, Public Finance Management Law, No. 9, of 2011

3. Lagos State, Local Government (Administration) Law, No 7 of 1999

4. Audit Service Commission and the Office of the Auditor General for Lagos State, Law 7, 2011

5. Model Financial Memoranda for Local Government, Second Edition 1998

6. Lagos State, Guidelines on Administrative Procedure for Local Governments, 2011

7. Lagos State Government Civil Service Rules, 1981

Some relevant extracts of the above laws are included below. Some other laws and

regulations which may be relevant for the Office of the Auditor General Local Governments

are as follows:

• Local Government Education Authority Act, No. 3 of 1991

• Local Government Pension Law, No. 102 of 1979

• Lagos State Pension Reform Law of 2007.

• Lagos State Local Government Levies (Approved Collection List) Law of 2010

Key legal and regulatory provisions:

1. Constitution of the Federal Republic of Nigeria, 1999

125. (1) There shall be an Auditor-General for each State who shall be appointed in accordance with the provisions of section 126 of this Constitution. (2) The public accounts of a State and of all offices and courts of the State shall be audited by the Auditor-General for the State who shall submit his reports to the House of Assembly of the State concerned, and for that purpose the Auditor-General or any person authorised by him in that behalf shall have access to all the books, records, returns and other documents relating to those accounts.


(3) Nothing in subsection (2) of this section shall be construed as authorising the Auditor-General to audit the accounts of or appoint auditors for government statutory corporations, commissions, authorities, agencies, including all persons and bodies established by Law by the Auditor-General shall: (a) provide such bodies with - (i) a list of auditors qualified to be appointed by them as external auditors and from which the bodies shall appoint their external auditors, and (ii) a guideline on the level of fees to be paid to external auditors; and (b) comment on their annual accounts and auditor's report thereon. (4) The Auditor-General for the State shall have power to conduct periodic checks of all government statutory corporations, commissions, authorities, agencies, including all persons and bodies established by a law of the House of Assembly of the State. (5) The Auditor-General for a State shall, within ninety days of receipt of the Accountant-General's financial statement and annual accounts of the State, submit his report to the House of Assembly of the State and the House shall cause the report to be considered by a committee of the House responsible for public accounts. (6) In the exercise of his functions under this Constitution, the Auditor-General for a State shall not be subject to the direction or control of any other authority or person. 126. (1) The Auditor-General for a State shall be appointed by the Governor of the State on the recommendation of the State Civil Service Commission subject to confirmation by the House of Assembly of the State. (2) The power to appoint persons to act in the office of the Auditor-General for a State shall vest in the Governor. (3) Except with the sanction of a resolution of the House of Assembly of a State, no person shall act in the office of the Auditor-General for a State for a period exceeding six months. 127. (1) A person holding the office of Auditor-General under section 126 (1) of this Constitution shall be removed from office by the Governor of the State acting on an address supported by two-thirds majority of the House of Assembly praying that he be so removed for inability to discharge the functions of his office (whether arising from infirmity of mind or body or any other cause) or for misconduct. (2) An Auditor-General shall not been removed from office before such retiring age as may be prescribed by Law, save in accordance with the provisions of this section. 128. (1) Subject to the provisions of this Constitution, a House of Assembly shall have power by resolution published in its journal or in the Office Gazette of the Government of the State to direct or cause to be directed an inquiry or investigation into - (a) any matter or thing with respect to which it has power to make laws; and (b) the conduct of affairs of any person, authority, ministry or government department charged, or intended to be charged, with the duty of or responsibility for - (i) executing or administering laws enacted by that House of Assembly, and (ii) disbursing or administering moneys appropriated or to be appropriated by such House. (2) The powers conferred on a House of Assembly under the provisions of this section are exercisable only for the purpose of enabling the House to - (a) make laws with respect to any matter within its legislative competence and correct any defects in existing laws; and (b) expose corruption, inefficiency of waste in the execution or administration of laws within its legislative competence and in the disbursement or administration of funds appropriated by it.


129. (1) For the purposes of any investigation under section 128 of this Constitution, and subject to the provisions thereof, a House of Assembly or a committee appointed in accordance with section 103 of this Constitution shall have power to - (a) procure all such evidence, written or oral, direct or circumstantial, as it may think necessary or desirable, and examine all persons as witnesses whose evidence may be material or relevant to the subject matter; (b) require such evidence to be given on oath; (c) summon any person in Nigeria to give evidence at any place or produce any document or other thing in his possession or under his control, and examine him as a witness and require him to produce any document or other thing in his possession or under his control, subject to all just exceptions; and (d) issue a warrant to compel the attendance of any person who, after having been summoned to attend, fails, refuses or neglects to do so and does not excuse such failure, refusal or neglect to the satisfaction of the House of Assembly or the committee, and order him to pay all costs which may have been occasioned in compelling his attendance or by reason of his failure, refusal or neglect to obey the summons and also to impose such fine as may be prescribed for any such failure, refusal or neglect; and any fine so imposed shall be recoverable in the same manner as a fine imposed by a court of law. (2) A summons or warrant issued under this section may be served or executed by any member of the Nigeria Police Force or by any person authorised in that behalf by the Speaker of the House of Assembly of the State.

2. Lagos State, Local Governments (Administration Law) Law, No 9 of 1999

Part VI

48. Allocation of Revenue to Local Government

49. Appointment of the Auditor-General

There shall be an Auditor-General for the Local Governments who shall be appointed by the Governor

subject to the ratification of the House of Assembly.

50. Auditing of Account of Local Government

(1) The accounts of the Local Government and all other offices of the Local Government

shall be audited annually in accordance with the provisions of this Section.

(2) The Auditor-General shall, within 6 months from the end of each financial year, submit

his report to the House of Assembly.

(3) For the purpose of carrying out his duties under this Section, the Auditor-General or

any person authorised by him in that behalf, shall have access to all books, records, returns

and other documents relating to those accounts.

(4) In exercise of his functions under this Law, the Auditor-General shall not be subject to

the direction or control of any other authority or person.

3. Lagos State Public Finance Management Law, No. 9 of 2011

Auditing of Accounts of Local Governments

69. – (1) The accounts of Local Governments and all other offices of the Local Governments shall be

audited annually in accordance with the provisions of this Section.


(2) The Auditor-General shall within six (6) months from the end of each financial year, submit

his report to the House of Assembly.

(3) For the purpose of carrying out his duties under this Section, the Auditor-General or any

person authorized by him in that behalf, shall have access to all books, records, returns and

other documents relating to those accounts.

(4) In exercise of his functions under this Law, the Auditor-General shall not be subject to the

direction or control of any other authority or person.

Accounts and Audit

70. (1) Every Local Government shall in each year keep proper books of accounts and proper records

in relation to its accounts and shall, within the first quarter of the subsequent financial year, prepare a

statement of its final accounts in conformity with existing financial regulations.

(2) The accounts and financial statement of Local Government shall be audited by the Auditor-

General or his representative within six (6) months after the close of the financial year and the

Chairman of a Local Government shall provide the auditors with all the necessary and

appropriate facilities for the examination of the accounts and statements of the Local

Government.

(3) The Auditor-General shall submit a report of the audit to the Local Government concerned

and the House of Assembly.

(4) The Auditor-General's report shall draw attention to any irregularity in the accounts.

(5) The accounts and the Auditor-General's report on it shall be public documents and shall be

published and made available to the public on payment of minimal fees.

(6) The Chairman of a Local Government shall lay the annual accounts together with the

Auditor-General's report before the Local Government's Legislative arm within thirty (30) days

of receipt of the report.

(7) The Chairman of a Local Government shall submit a report to the Auditor-General on the

action taken by the Local Government on the report within sixty (60) days of receipt of the

report. A copy of the report shall be

forwarded to the House of Assembly.

Auditor-General may Disallow or Surcharge

71. - (1) The Auditor General for Local Governments may disallow any item of expenditure which is

contrary to, this law or surcharge any person for any of the following-

(a) the amount of any expenditure disallowed on the person responsible for incurring or

authorizing that expenditure;

(b) any sum which has not been duly brought into account upon the person by whom

the sum ought to have been brought into account; or


(c) the amount of any loss or deficiency caused by any employee of a Local

Government or any elected officer or any person by whose negligence or misconduct

the loss or deficiency has been incurred and shall give notice to the-person affected.

(2) In giving notice of any disallowance or surcharge under subsection (1) of this Section, the

Auditor-General shall state in writing the grounds upon which his decision is based.

(3) A person against whom a disallowance or surcharge was made by the Auditor-General may

appeal to the House of Assembly through the Public Account Committee after the Auditor-

General shall have stated in writing the grounds upon which his decision is based.

(4) Any sum certified by the Auditor-General to be due from any person shall be paid by that

person to the Local Government or other body concerned within thirty (30) days after it has

been so certified or if an appeal with respect to that sum has been made under subsection (3)

of this Section within thirty (30) days after the appeal is finally disposed of or abandoned or

failed by reason of non-pursuance.

(5) The Chairman of a Local Government shall ensure that all money surcharged under

subsection (2) of this Section are collected and paid into the account of the Local Government.

Recovery of Sums Certified Due

72. -(1) Any sum which is certified by the Auditor-General to be due and which has become payable

shall be recoverable as a civil debt.

(2) Any person aggrieved by a decision of the Auditor-General may appeal to the House of

Assembly and if dissatisfied, may appeal to the High Court.

Internal Audit

73.- (1) Every Local Government shall establish an Internal Audit Department in order to ensure

effective, efficient and continuous audit of the financial activities of the Local Government.

(2) In pursuance of subsection (1) of this Section, career progression shall be harmonized and

a new Audit cadre shall be created to distinguish accounting from auditing functions.

(3) The head of the Internal Audit Department shall at intervals of three (3) months, prepare a

report on the internal audit work carried out by the Department during the three (3) months

immediately preceding the preparation of the report, and submit it to the Legislative arm of the

Local Government and forward copies to the Auditor General for Local Government.

(4) The head of the Internal Audit Department shall make in each report such observations as

appear necessary as to the conduct of the financial affairs of the Local Government during the

period to which the report relates.

(5) The Department shall be headed by the Local Government Internal Auditor in line with the

existing state cadre.

(6) The Local Government Internal Auditor's functions shall cover both the financial and

operational activities of the Local Government.


Existing Regulation

74. The provisions of the financial memorandum as reviewed from time to time, shall be used in

addition to the provisions of this law. [Model Financial Memoranda for Local Government, Second

Edition 1998]

Power to make Regulations

88. The Commissioner may make regulations concerning any matter for the purpose of giving effect to

the provisions of this Law

Repeal

89. The provisions of the Finance (Control and Management) Law Cap. F2, Laws of Lagos State of

Nigeria 2003 is repealed.

4. Audit Service Commission and the Office of the Auditor General for Lagos State, Law 7, 2011

[does not directly include audit of local governments, but section 29 indicates

the auditing standards that may be adopted]

28. All reports of the Auditor-General submitted to the House of Assembly shall be treated as House of

Assembly reports and shall enjoy all privileges accorded to House of Assembly reports.

29.-(1) The Auditor-General shall determine which auditing standards should be applied and may establish

audit programmes and code of ethics specific to the audits performed by the Office of Auditor-General.

(2) The auditing standards shall include -

(a) Public Sector Auditing Standards issued by Conference of Federal and State Auditors-General;

(b) Accounting Standards issued by the Nigerian Accounting Standards Board (now called Financial

Reporting Council of Nigeria).

(c) The Auditing Standards and Code of Ethics published by the International Organisation of Supreme Audit

Institutions (INTOSAI) and the International Auditing and Assurance Standards Board (lA&ASB);

(d) The Accounting Standards and Code of Ethics published by the International Federation of-Accountants

(IFAC);

(e) International Public Sector Accounting Standards (lPSAS); and

(f) Other recognised or required standards issued or accepted as current best practices by funding or donor

organisations.

30.-(1) Within a period of six (6) months after the end of each fiscal year, the Accountant-General of the

State shall present to the Auditor-General, accounts showing the fiscal position of the State as at the last day

of the preceding year.

(2) Such accounts shall include:

(0) Statement No.1 Responsibility for Financial Statement;

(b) Statement No.2 Cash Flow Statement;


5. Model Financial Memoranda for Local Government, Second Edition 1998

6. Guidelines on Administrative Procedure for Local Governments, 2011 Issued by the Commissioner for Local Government and Chieftaincy Affairs under Section 32

of the Local Government (Administrative Law)

7. Lagos State Government Civil Service Rules, 1981 Issued by the Governor of Lagos State under Section 11 of the Lagos State Civil Service

Commission Law, No. 7 of 1979.


Annex C

Glossary of Terms Used Auditors

Accounting Control System - A series of actions which is part of the total internal control

system concerned with realising the accounting goals of the entity. This includes compliance

with accounting and financial policies and procedures, safeguarding the entity's resources and

preparing reliable financial reports.

Adequate Control - Present if management has planned and designed and organised their

operations in a manner that provides reasonable assurance that the organisation's goals and

objectives are being achieved efficiently and economically.

Auditing Standards -The standards for the professional practice of auditing are the criteria

by which the operations of an auditing department are evaluated and measured. They are

intended to represent the practice of auditing, as it should be. The most important standards

for the Office of the Auditor General Local Governments are the INTOSAI auditing standards.

Audit Evidence - Information that forms the foundation which supports the auditor's or Auditor

General's opinions, conclusions or reports.

Competent: information that is quantitatively sufficient and appropriate to achieve the auditing

results; and is qualitatively impartial such as to inspire confidence and reliability.

Relevant: information that is pertinent to the audit objectives.

Reasonable: information that is economical in that the cost of gathering it is commensurate

with the result which the auditor or the Auditor General is trying to achieve.

Audit Mandate - The auditing responsibilities, powers, discretion and duties conferred on

Auditors under the Constitution and other lawful authorities of the country.

Audit Objective - A precise statement of what the audit intends to accomplish and/or the

question the audit will answer. This may include financial and performance issues.

Audit Procedures - Tests, instructions and details included in the audit programme to be

carried out systematically and reasonably.

Audit Query - An audit query is an irregularity identified by the auditor which is defined in the

Guidelines on Administrative Procedures. The relevant official in the local government is

informed in writing on each audit query and is given a specified time to respond, often seven

days.

Audit Scope - Refers to the activities covered by an audit. Audit scope often includes:

Audit objectives

Nature and extent of auditing procedures performed

Time period audited

Related non-audit activities that delineate the boundaries of the audit. Audit Work Schedules - include:

What activities are to be audited

When they will be audited, and

The estimated time required, taking into account the scope of the audit work. Audit Working Papers - Record the information obtained, the analyses made, and the


conclusions reached during an audit. Audit working papers support the bases for the findings

and recommendations to be reported.

Auditable activities - Consist of those subjects, units, or systems, which are capable of being

defined and evaluated. Auditable activities may include:

Policies, procedures and practices

Cost centres, profit centres and investment centres

General ledger account balances

Information systems (manual and computerised)

Major contracts and programmes

Organisational units such as product or service lines

Functions such as information technology, purchasing, marketing, production, finance, accounting and human resources

Transaction systems for activities such as sales, collection, purchasing, disbursement, inventory and cost accounting, production. treasury, payroll and capital assets

Financial statements

Laws and regulations. Auditee - Any individual, unit or activity of an organisation that is subject to audit.

Authorisation - Implies that the authorising authority has verified and validated that the

activity or transaction conforms with established policies and procedures and all the

requirements of the regulations etc have been complied with.

Authorising - Includes initiating or granting permission to perform activities or transactions.

Code of Ethics - The purpose of INTOSAI's Code of Ethics is to promote an ethical culture for

the public sector auditing profession. It promotes professional and high standards of behavior

for all auditors.

Commitment - The placing of an official order, the signing of an official contract or the

recruitment of an official. This action commits the local government to future payments once

the goods or services are provided.

Compliance - The ability to reasonably ensure conformity and adherence to organisation

policies, plans, procedures, and relevant laws, regulations, and contracts.

Conclusions (Opinions) - The auditor's evaluation of the effects of the findings on the

activities reviewed. Conclusions usually put the findings in perspective based upon their

overall implications and possible effects.

Conflict of Interest - Any relationship that is or appears to be not in the best interest of the

organisation. A conflict of interest would prejudice an individuals ability to perform his or her

duties and responsibilities objectively.

Constitution - Refers to the Constitution of the Federal Republic of Nigeria, 1999 as

amended.

Control - Any action taken by management, the Executive Committee, the Chair or other

officials to increase the likelihood that established objectives and goals are achieved.

Departmental Vote Expenditure Account - A record of all commitments and payments

against particular budget vote heads and sub-heads. This ledger allows the balance

remaining for further commitments and payments on each budget sub-head to be monitored

to avoid the risk of over-spending the budget.


A similar ledger, the Departmental Vote Revenue Account, is used to monitor the collection of

revenue.

Due Care - The appropriate element of care and skill which a trained auditor would be

expected to apply having regard to the complexity of the audit task. Including careful attention

to planning, gathering and evaluating evidence, and forming opinions, conclusions and

making recommendations.

Economy - Minimizing the cost of goods, services or an activity, having regard to appropriate

quality standards, for example, reducing the cost of text books for a school.

Effectiveness -The extent to which objectives are achieved and the relationship between the

intended impact and the actual impact of an activity. So for example, a primary school is more

effective if the number of pupils passing the leaving certificate increases.

Efficiency - The relationship between the output, in terms of goods, services or other results,

and the resources used to produce them. So, for example, an efficient school is one where

the costs per pupil passing the primary leaving certificate is low.

Effective Control - Present when management directs systems in such a manner as to

provide reasonable assurance that the organisation's objectives and goals are achieved.

Error - As it relates to audit reports, it is an unintentional misstatement or omission of

significant information in a final audit report.

External Auditors - Refers to those audit professionals who perform independent annual

audits of an organisation's financial management and financial statements.

Financial Systems - The procedures for preparing, recording and reporting reliable

information concerning financial transactions.

Findings, Conclusions and Recommendations - Finding are the specific evidence gathered

by the auditor. Audit findings generally relate to cases where the relevant regulations

(Financial Memoranda) or Guidelines on Administrative Procedure have not been properly

followed. Conclusions are general statements based on the overall findings; recommendations

are action for the auditee which is suggested by the auditor.

Follow-up - A process by which auditors determine the adequacy, effectiveness and

timeliness of actions taken by management on reported audit findings. Action taken by

management is recorded and a judgement taken on whether it fully addresses the Audit Query

or findings.

Fraud - Any illegal acts characterised by deceit, concealment or violation of trust. Frauds are

perpetrated by individuals to obtain money, property or services; to avoid payment or loss of

services; or to secure personal or business advantage.

Governance Process - The procedures utilised by the representatives of the organisation's

stakeholders to provide oversight of risk and control processes administered by management

Illegal Acts - Refers to violations of laws and governmental regulations

Independence - The freedom of the Auditor General in auditing matters to act in accordance

with its audit mandate without external direction or interference of any kind.

Internal Auditor - An individual within an organisation's internal auditing department who is

assigned the responsibility of performing internal auditing functions.


Internal Control - The whole system of financial and other controls, including the

organisational structure, methods, procedures and internal audit, established by management

within its corporate goals, to assist in conducting the business of the audited entity in a regular

economic, efficient and effective manner; ensuring adherence to management policies;

safeguarding assets and resources; securing the accuracy and completeness of accounting

records; and producing timely and reliable financial and management information.

International Organisation of Supreme Audit Institutions (INTOSAI) - the international and

independent body which promotes the exchange of ideas and experience between Auditors

General across the world in the sphere of public financial control.

International Standards on Auditing (ISAs) - developed by the International Auditing and

Assurance Standards Board (IAASB) as the standards for the audit of private sector entities.

They has been adopted by INTOSAI with the addition of Practice Notes as a guide to forming

an opinion on the financial statements of public sector organisations.

Irregularity - Refers to the misstatement or omission of significant information in accounting

records, financial statements, other reports, documents or records.

Irregularities include:

Any non-conformity with appropriate financial or other laws, regulations or guidance

Fraudulent financial reporting which renders financial statements misleading

Misappropriation of assets. Irregularities involve:

Falsification or alteration of accounting or other records and supporting documents

Internal misapplication of accounting principles

Misrepresentation or intentional omission of events, transactions or other significant information. Management - Used to indicate, firstly, the level of management to whom the auditor is

responsible and secondly anyone in the organisation with responsibilities for setting and/or

achieving objectives

Materiality and Significance (Material) - In general terms, a matter may be judged material if

knowledge of it would be likely to influence the user of the financial statements or the

performance audit report. Materiality is often considered in terms of value but the inherent

nature or characteristics of an item or group of items may also render a matter material--for

example, where the law or some other regulation requires it to be disclosed separately

regardless of the amount involved. In addition to materiality by value and by nature, a matter

may be material because of the context in which it occurs. For example, considering an item

in relation to the overall view given by the accounts; the total of which it forms a part;

associated terms; the corresponding amount in previous years. Audit evidence plays an

important part in the auditor's decision concerning the selection of issues and areas for audit

and the nature, timing and extent of audit tests and procedures.

Monitoring - Encompasses supervising, observing and testing activities and appropriately

reporting to responsible individuals. Monitoring provides an ongoing verification of progress

toward the achievement of objectives and goals.

Objectivity - An unbiased mental attitude that requires auditors to perform engagements in

such a manner that they have an honest belief in their work product and that no significant

quality compromises are made. Objectivity requires auditors not to subordinate their judgment


on audit matters to that of others.

Opinion - The auditor's written conclusions on a set of financial statements as the result of a

financial or regularity audit.

Proficiency - Proficiency means the ability to apply knowledge to situations likely to be

encountered and to deal with them without extensive recourse to technical research and

assistance.

Performance Audit - An audit of the economy, efficiency and effectiveness with which the

audited entity uses its resources in carrying out its responsibilities.

Planning - Defining the objectives, setting policies and determining the nature, scope, extent

and timing of the procedures and tests needed to achieve the objectives.

Proficiency - Proficiency means the ability to apply knowledge to situations likely to be

encountered and to deal with them without extensive recourse to technical research and

assistance.

Public Accountability - The obligations of persons or entities, including public enterprises

and corporations, entrusted with public resources to be answerable for the fiscal, managerial

and program responsibilities that have been conferred on them, and to report to those that

have conferred these responsibilities on them.

Recommendations - Actions the auditor believes necessary to correct existing conditions or

improve operations.

Regularity Audit - Attestation of financial accountability of accountable entities, involving

examination and evaluation of financial records and expression of opinions on financial

statements; attestation of financial accountability of the government administration as a whole;

audit of financial systems and transactions, including an evaluation of compliance with

applicable statutes and regulations; audit of internal control and internal audit functions; audit

of the probity and propriety of administrative decisions taken within the audited entity; and

reporting of any other matters arising from or relating to the audit that the Auditor General

considers should be disclosed.

Risk - The possibility of an event occurring that will have an impact on the achievement of

objectives. Risk is measured in terms of impact (what may happen) and likelihood (probability

of it happening).

Significant - The level of importance or magnitude assigned to an item, event, information or

problem by the auditor.

Significant Audit Findings - Those conditions, which in the judgment of the chief auditor

could adversely affect the organisation. Significant audit findings may include conditions

dealing with irregularities, illegal acts, errors, inefficiency, waste, ineffectiveness, conflicts of

interest, and control weaknesses. If not addressed by the local government, significant audit

findings will be included in the annual statutory audit report.

Statement of Responsibilities of Internal Auditing - A document which presents in

summary form the:

Objective and scope of internal auditing

Responsibility and authority of the internal auditing department

Independence of internal auditors.


Supervision - A process, which begins with planning and continues throughout the

examination, evaluation, report and follow-up phases of the audit assignment. It is primarily

undertaken by audit Team Leaders and Co-ordinators.

Supervision Includes:

Ensuring that the auditors assigned possess the requisite knowledge and skills. Providing appropriate instructions during the planning of the audit and approving the audit programme

Seeing that the approved audit programme is carried out unless changes are both justified and authorised

Determining the audit working papers adequately support the audit findings conclusions and reports.

Ensuring the audit reports are accurate, objective, clear, concise, constructive and timely

Ensuring that audit objectives are met

Providing opportunities for developing auditors knowledge and skills. Survey - A process for gathering information without detailed verification on the activity being

examined. The main purposes are to:

Understand the activity under review

Identify significant areas warranting special emphasis

Obtain information for us in performing the audit

Determine whether further auditing is necessary System - System (process operation, function or activity) is an arrangement, a set, or a

collection of concepts, parts, activities and/or people that are connected or interrelated to

achieve objectives and goals. This definition applies to both manual and computer or IT

systems. A system may also be a collection of sub-systems operating together for a common

objective or goal.

Understanding - Means the ability to apply broad knowledge to situations likely to be

encountered, to recognise significant deviations and to be able to carry out the research

necessary to arrive at reasonable solutions.

Documents

Lagos State Local Government Audit Manual