Chapter 15 by G2iv1V

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									Chapter 15

Ministry of Education
Audit Period

     Audit Year 2007-08

Auditable Expenditure

   Grant No.                      Particulars               Rupees

   Current/ Non-Development Expenditure

         29     Education Division                          465,944,000
         30     Higher Education Commission              14,332,521,000
         31     Education                                   612,659,000
         32     Federal      Government      Educational  1,917,731,000
                Institutions in the Capital and Federal
                areas
                                                        17,328,855,000

   Development Expenditure
      138    Education Division                         4,418,015,000

                Total                                   21,746,870,000


Audit Formations
      Main secretariat
         Federal Directorate of Education
         Federal Government Educational Institutions in the Capital and
          Federally Administer areas
         University of the Punjab
         University of Karachi
         Promotion of research in Universities
         University of Sindh, Jamshoro


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           University of Engineering and Technology, Lahore
           University of the Peshawar
           Inter University Academic Activities
           University of Agriculture, Faisalabad
           Comsat Institute of Information Technology, Islamabad
           Basic Education Community Schools
           Madrassah Reforms
           Education for all

Audit Team

 S.No.             Name            Designation                 Role
   1.       Dr. Akmal Minallah     Director      Finalization of Audit report,
                                                 Holding DAC meetings
   2.       Nazar Rauf Rathore     Dy. Director Supervision of audit activities,
                                                 Planning of audit,
                                                 Review of audit findings,
                                                 Review of draft audit report
   3.       Muhammad Adnan         Audit         Technical support in planning,
                                   Expert        execution & reporting
   4.       Sheraz Hassan          Audit Officer Audit execution,
            Hassan Kazmi                         Preparation of AIRs & draft
                                                 audit report
                                                 Update audit permanent file
   5.       Sanual Hassib          Assistant     Audit execution,
                                   Audit Officer Prepare audit working papers


Time Schedule

   Ministry of Education
   From 3 July 2007 to 18 January 2008

   Higher Education Commission
   From 16 July 2007 to 3 December 2007

   (For details refer page 218)




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I.     AUDIT OBJECTIVE AND SCOPE


A.     Audit Objective
       The overall objective of this audit is to review the management, financial
       and operating controls to appraise their adequacy and soundness. As we
       are specifically focusing upon expenditure being incurred from the grants
       received, it is necessary evaluate the internal controls over expenditure.
       The main objectives of the audit of the ministry of education are:

       -   to attain reasonable assurance whether the financial statements are
           prepared in accordance with the identified financial reporting
           framework and the sum expanded has been applied in all material
           respect for the purposes authorized by the Parliament
       -   to check the system of internal control and compliance with the
           respective authorities
       -   to ensure proper classification with respect to account head, function
           and cost centre.
       -   to determine that payroll record is complete and accurate. To ensure
           that it is being updated and complies with all prescribed rates of
           Federal Govt.
       -   to determine if internal controls for recording and safeguarding of
           assets are adequate
       -   to provide certification for the foreign aided projects, if any
       -   to perform performance audit of the major education projects, so that
           efficiency, effectiveness and the impact of the project on the economy
           can be assessed.

B.     Audit Scope

       The auditor general is appointed under section 168 of the constitution of
       the Islamic republic of Pakistan, 1973 and section 169 defines the
       functions and powers of the auditor general as;

       -   The auditor general shall, in relation to-
       -   The accounts of the federation and of the provinces and
       -   The accounts of any authority or body established by the federation or
           a province
       -   Perform such functions and exercise such powers as may be
           determined by the parliament or by order of President.

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      Further the scope of the auditor general of Pakistan is defined in Section
      8 of the Auditor General’s Ordinance, 2001 which, empowers the Auditor
      General of Pakistan to audit:

         All expenditure from the Consolidated Funds of the Federation and of
          each Province;
         All transactions of the Federation and of the Provinces relating to
          Public Account;
         All trading, manufacturing, profit & loss accounts, balance sheets and
          other subsidiary accounts kept by order of the President or of the
          Governor of the province in any Federal or Provincial Department; and
         The accounts of any authority or body established by the Federation
          or a province, and in each case report on the expenditure,
          transactions or accounts so audited by him.

      Audit of Ministry of Education have to be conducted in accordance with
      the requirements of OAGP Auditing Standards as enshrined in FAM. The
      scope of audit includes verification and analysis of current and
      development expenditure on test check basis and also includes
      performance audits as and when required. Compliance testing and
      substantive tests have to be performed as appropriate, but due to the
      extensive volume of transactions, more emphasis is laid on compliance
      testing. Brief description of areas to be covered is as follows:-

            Current expenditure to be verified on sampling basis to ensure the
             completeness, accuracy, relevance, genuineness and proper
             classification as well as compliance of grant formalities.
            Development expenditure has to be checked and verified on a test
             check basis keeping in view the procedures for the purchases,
             the necessary formalities that are required to be fulfilled for the
             expenditure incurred and the related documentation maintained in
             support of the expenditure incurred.
            Compliance with approved accounting framework which is NAM.
            Compliance of the laws and regulations i.e. PC-1, PPRA rules,
             financial policies etc.
            Compliance audits / reviews of attached Authorities




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II.    SIGNIFICANCE AND UNDERSTANDING OF THE MINISTRY

A.     Significance of Education sector in Pakistan

       Education is a categorical imperative for individual, social and national
       development that should enable all individuals to reach their maximum
       human potential. The system should produce responsible, enlightened
       citizens to integrate Pakistan in the global framework of human centered
       economic development.

B.     Background of the Higher Education Commission

       Higher Education Commission (“HEC”) was setup under the President
       Ordinance in September 2002 to facilitate the development of indigenous
       universities to be world-class centers of education, research and
       development. Through facilitating this process, the HEC intends to play
       its part in spearheading the building of a knowledge-based economy in
       Pakistan.

       HEC has succeeded the old Universities Grants Commission with
       enhanced powers and new vision.

       Since its establishment, the Higher Education Commission has
       undertaken a systematic process of implementation of the five-year
       agenda for reform outlined in the HEC Medium Term Development
       Framework (MTDF), in which Access, Quality and Relevance have been
       identified as the key challenges faced by the sector. To address these
       challenges a comprehensive strategy has been defined that identifies the
       core strategic aims for reform as (i) Faculty Development, (ii) Improving
       Access, (iii) Excellence in Learning and Research, and (iv) Relevance to
       National Priorities. These strategic aims are supported by well-integrated
       cross-cutting themes for developing Leadership, Governance and
       Management, enhancing Quality Assessment and Accreditation and
       Physical and Technological Infrastructure Development.

C.     Background of the Ministry of education

       Under the Rules of Business 1973 as amended from time to time,
       Ministry of Education is responsible for the overall development of
       educational infrastructure and policy planning and implementation.


       The understanding of the ministry is obtained in lines provided in the
       form PF-I till PF-IX of the audit working paper kit, which includes,

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      Organizational Structure
      The organizational structures of the ministry and Higher Education
      Commission are annexed as Annexure A to the chapter.

      Principal Address
      Block D, Pak-Secretariat, Islamabad

D.    Status of the Entity and its Core Operations

a)    Status of the entity

      Ministry of education is strategically run by elected representatives of the
      public and administratively controlled by the bureaucracy.

      Being the primary concern sector for any government this sector is
      controlled by each provincial ministry at province level and by district
      governments at district level.

b)    Core Operational Activity
      The core operational activities of the ministry are to,
       Development and coordination of national policies, plans and
        programs in education,
       Development of curricula and textbooks, National Book Foundation,
       Establishment and maintenance of national educational institutions
       Organizations and disbursement of grant-in-aid to them,
       Development of instructional technology, promotion and coordination
        of educational research,
       External examination and equivalence of degrees and diplomas, etc


      Pakistan is committed to achieving the Millennium Development Goals as
      the national agenda for development as well as improving education
      condition. Education, health, and poverty alleviation are Government
      priorities.
      There is a full commitment at policy level about the importance of
      investing in education as a critical input for socio economic development.

      To translate this commitment into action a number of initiatives in
      public sector programs (new and ongoing) have been undertaken: the
      most notable include the Basic Education Community Schools,
      Madrassah reforms, Education for all and Capacity Building of Teachers

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       Training Institutes of Ministry of Education and training of elementary
       schools teachers in Punjab program. These programs with current and
       future major interventions should help to improve literacy in boys and
       girls and contribute towards the achievement of the MDGs.

       Investment in education though increased by 12%, in 2006-07 from
       previous years, yet it is still only 0.68% of the total federal development
       program. The government obtains foreign loan/aid also to invest in the
       education sector. Federal MoE is the key functionary which plays a
       leading role in regulating aid flow in the education sector. The poverty
       reduction strategy paper (PRSP) was adopted as a basic document for all
       aid efforts; donors channel their resources towards common identified
       objectives with government. The common identified objectives are:
        Increased coverage of education facility
        Reduction of inequalities
        And achieving millennium development goals, that is increase literacy

       Being the priority agenda of the government a lot can be achieved in
       improving literacy due to non-availability basic education facilities if the
       commitment from the bureaucracy is there.

E.     SWOT analysis

        Before considering the risk areas that are at present hindering the
        government in fully implementing the millennium development
        objectives in education sector, the strength/opportunities available for
        its foster growth and achieving objectives are discussed below;

       Strengths
        Full financial support from Federal Government
            Federal Government provides full financial support to the education
            support

           Vesting of Powers through Legislation
            Devolution of the power through Ministry of Education at all levels of
            government, that is, federal, provincial and local government level.

           Availability of large infrastructure
            Large infrastructure in federal, provincial and local government is
            provided




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      Weaknesses
      The main weaknesses of the system that are identified before starting the
      audit engagement activities through discussions with the key officials
      and initial system analysis are;
       Un-unified course irrespective of sex, religion and cast
       Lack of experienced Project Implementers
       Lack of co-ordination within departments and with outside 3rd parties
       Lack of master trainers and qualified educationists

      Threats

       Extremist attacks on the educational centers
       Religious leaders may hinder the activities
       Change of government may suspend the development projects
        undertaken by the present government.
       Funds might not be utilized for the purposes to achieve the targets.
       Qualified staff leaves the organization

      Opportunities

         Development of virtual education institutions
         Online libraries
         Registration of new institutes online using web base technology
         Coordination with International organizations
         Have tremendous growth opportunities in education sector

F.    External Factors (PEST analysis)

      External factors that might affect the ministry’s performance may
      include;

      -   Technological factors
      -   Social factors
      -   Political factors
      -   Economic factors
      -   Climatic factors

      Technological factors

      Can lead to burden the budget if the institutes and scholars are targeted
      in technology area which can no longer be in demand/use i.e.
      Information Technology, Science education



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       Social factors

       Cultural issues can lead to gender bias in some areas resulting in non
       availability /non willingness for females in enrolment into education
       programs

       Political factors

        Change of government may abandon present programs
        Funding from the foreign donor may discontinue due to external
         pressures.

       Economic factors

        If the economic condition of Government Detroit, Government may
         impose major cut on the education budget hence resulting in
         curtailment of MoE activities
        High rates of inflation can lead to high rates of education resulting in
         low enrolments in higher education programs

       Climatic disaster

        Natural disaster such as earth quake, flood
        Sudden change in weather patterns


G.     Intergovernmental Relationship:
       Functionally ministry consists of one main division along with various
       line departments/suboffices. The Ministry of Education is responsible for
       matters concerning National Planning and Coordination in the field of
       Education.

       Departments:
       The Departments attached/sub-ordinate with the ministry of education
       are ;

          Department of libraries Islamabad/ Karachi
          Federal Directorate of Education, Islamabad
          Monitoring and Evaluation Cell
          Revision of Education Policy
          Discretionary grant by the minister of the state for education
          International Federation of Library association, Hague
          Contribution & subscription to International ISBN agency London, UK
          Office of the permanent representative to UNESCO, Paris etc

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      Various programs are initiated by the government under each
      division/department with a sharper focus on poor and unprivileged
      segments of the society.


H.    Accounting System of the Ministry:
         Ministry of education is a centralized accounting entity, where,
          controller general of accounts is responsible for processing of its
          accounting transactions and maintaining the accounts. The sub
          offices of the controller general of accounts at province and districts
          maintain the respective accounts.
         Various development projects are undertaken by each line
          department. For the purpose of the accounting classification each
          division and line departments are classified under cost centers, (the
          functions), which are then further classified into various cost element
          ( the objects).
         The major cost centers as per New Accounting Model are;

            Account      Cost centers
             Code
              093        Tertiary Education Affairs and services
              095        Subsidiary Services to Education
              096        Administration

         For more specific accounting each department and projects to further
          detailed level can be classified as cost centre.

         Each cost centre is further divided into cost elements, the major
          classification of which is detailed below;

            Account      Cost elements
             Code
             A01         Employee related expenses
              A02        Project pre-investment analysis
              A03        Operating expenses
              A04        Employees retirement benefits
              A05        Grants subsidies and write-off loans
              A06        Transfers
              A09        Physical assets
              A13        Repairs and maintenance

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          Broadly the expenditures are classified as current or non-development
           expenditure and development expenditure. Separate budget are
           allocated for each type of expenditure.
          Gazette officers of at least BPS 16 and above hold the charge of the
           post   of          drawing    and   disbursing   officers in   each
           ministry/divisions/departments/development projects.
          The budget allocation are on account of
          Releases from the federal government
          Grant in aid
          The budget are transferred        through     the   following   to   the
           ministries/departments;
          AGPR Counter
          PLA is maintained with federal treasury and
          Assignment account maintained with NBP
          Departmental accounts
          The budget of province is transferred to account 1 whereas the
           budgets of districts are then transferred to a/c IV.
          Foreign aided projects maintain departmental accounts where the
           expenses are incurred in the department from the government
           account and the proportionate share is reimbursed from the aid
           account.
          Ministry wise list of authorized signatory of the formations audited
           dated during the course of audit and annexed as annexure II.


III.   RISK ASSESSMENT


A.     General Risk Assessment Procedures


       Our risk based approach during the audit would be to plan and
       document our risk assessment procedures performed so as to obtain an
       understanding of the entity and its environment. Our risk assessment
       procedures may include inquiries, observations and inspections, and
       analytical procedures. The major risk factors that would commonly be
       addressed to assess the risk of the entity are;

          The adequacy of internal controls and the control consciousness
           environment is in place;
          Participation by those charged with governance
          Management approach to taking and managing business risks

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         Changes in operating environment
         Corporate restructuring
         Discussions with the management regarding any internal control
          weakness, frauds and irregularities identified earlier.
         Are changes in the design of internal controls documented and review
          by a competent authority;
         There is a clearly defined organization structure and the operating
          functions are performed independently so as to create segregation of
          duties;
         The role and authority of the internal audit function (if any), and
          review of internal auditor’s assessment of the corrective actions taken,
          and to consider the impact on the nature, extent and timing of our
          audit tests and procedures;
         The nature of transactions (for example, the number and Rupee
          volumes and the complexity involved);
         Assessment of non-routine transactions and its adequacy of its
          documentation and approvals;
         Understanding of the financial reporting process;
         The age of the system or applications used;
         The physical and logical security of information, equipment, and
          premises;
         Susceptibility of assets to theft and misappropriation;
         The adequacy of operating management oversight and monitoring;
         Previous regulatory and audit results and management’s
          responsiveness in addressing the issues raised;
         Human resources, including the experience of management and staff,
          turnover, technical competence, management’s succession plan, and
          the degree of delegation; and
         Senior management oversight.

      The auditor must be able to identify high risk areas and the high risk
      areas may be identified from material weaknesses. Material weaknesses
      will be;

         Be evident at multiple agencies
         Affect a significant portion of the government’s total budget or other
          resources
         Stem from a deficiency that should be monitored and addressed
          through individual agency actions as well as through Office of
          Management and Budget initiatives
         Major non-compliance of applicable laws and regulations.




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B.     Inherent Risk Factors

       1) Inherent risk factors associated with activities/programmes

             Complexity of programs;
             Complex, unusual or high value transactions;
             Activities involving the handling of large amounts of cash or high
              value attractive goods - embezzlement or theft;
             Activities of a nature traditionally considered to be particularly
              prone to fraud or corruption (e.g. public works and technical
              contracts, contracts for the delivery goods);
             Urgent operations (e.g. emergency aid) and operations not fully
              subject to the usual controls;
             Historical evidence of a high incidence of intentional irregularities;
             Eligibility criteria inconsistent with objectives (too wide, too
              restrictive, not relevant);
             Activities that are uninsurable and/or are subject to risks arising
              from political, financial, ecological (etc) instability;

       2) Inherent risk factors associated with the operating structure

             Management approach to taking, managing and mitigating
              business risk;
             Geographically dispersed organization, or organization operating in
              areas where communications are difficult;
             Unclear      division     of     responsibilities    within     the
              Division/Department;
             Activities or projects involving numerous partners (coordination
              problems, weaknesses in management and communications
              structures);
             Particular points mentioned in internal and external audit reports,
              and in press reports etc.

       3) Inherent risk factors associated with the beneficiaries

             Operations where the conduct of beneficiaries is difficult to check,
              or where the ultimate beneficiaries may be different from the
              apparent recipient;
             Beneficiaries highly dependant on public funds;
             Activities which imply several levels of subcontracting, making the
              identification of eligible beneficiaries difficult;
             Historical evidence of a high incidence of intentional irregularities;
             Political or administrative pressure exerted by beneficiaries or
              participants in the activity;

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             Imposition of unwanted responsibilities      upon    organizations,
              administrations or beneficiaries;

      4) Inherent risk factors associated with the economic or technical
         circumstances

             Abnormal trends and ratios;
             Results intangible or difficult to evaluate;
             Activities that are starting up or coming to an end, or are subject
              to rapid technological change;
             Unstable sources of supply and variable prices of inputs (raw
              materials, etc);
             Over-dependence on one supplier (e.g. supplier of equipment has
              exclusive maintenance contract, is sole supplier of parts and
              materials, software, etc);

      5) Inherent risk factors associated with the audited entity

             Lack of turnover of personnel and/or personnel not taking holidays
              in a sensitive department/area;
             Activities with which the audited entity has no or limited
              experience;
             Activities that are highly dependant upon a small number of key
              personnel;
             Insufficient staff, or staff and management under-qualified,
              inexperienced or poorly motivated;
             Peaks and troughs in work patterns and information flows;
             Utilization of obsolete information technology systems;

      6) Inherent risk factors associated with the audited entity’s
         management policies and practices

             Badly defined or unrealistic objectives;
             Strong pressure upon management to produce results, achieve
              objectives, meet unrealistic deadlines, achieve high rates of
              budgetary utilization at the year-end;
             Short-term budgetary pressures (e.g. delay in undertaking
              necessary maintenance imposes greater costs later);
             Management, supervision and control functions poorly suited to
              the activity;
             Lack of management information system and/or cost accounting
              system;
             Unclear division of responsibilities within and between the various
              departments;

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C.     Specific Audit Risks
        Proper utilization of development budget
        Violation of PPRA rules, 2004.
        Illegitimate payments
        Compliance with clauses of grant agreements
        Proper authorization and classification of expenses
        Incorrect mode of payment
        Incomplete record
        Misuse and mismanagement of funds
        Inadequate control over cash payments and bank payments

       The major areas that are considered material and need to be focused
       upon during the course of audit includes:

       •    Employee related expenses
       •    Operating expenses
       •    Grant in aids & write off of loans
       •    Repair and maintenance
       •    Physical assets
       •    Transfers

IV.    AUDIT APPROACH

       The audit approach would include a combination of financial audit and
       compliance audit. At the preliminary stage, the assessment of internal
       control system would be performed to identify the weaknesses that would
       lead to the assessment of audit risk. Materiality level is basically
       determined at 2 percent of the budgeted amount, but nature of
       expenditure is also considered. The departments, offices and projects are
       selected on the basis of
       -   High budget appropriation
       -   Grants subsidies and write offs involved
       -   Criticality of audit issues
       -   Sensitivity of core operations
       -   Government high priority areas that are threats for public
       -   Huge investment in the procurement
       -   Huge investments by the donors and the government
       -   Projects not audited in the previous year


       The selection of each DDO of each division for current expenditure and
       development expenditure is made on the basis of the level of materiality
       that is established by determining its nature and its amount. The DDOs

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      selected have been mentioned individually and the areas to be focused
      upon are also mentioned.


      The audit approach for efficient and effective would encompass around
      understanding of the financial reporting and internal control system,
      checking compliance with applicable laws and regulations and
      performing compliance testing (test of control) and substantive testing as
      appropriate. The audit procedures may include any of the following, but
      are not exhaustive of the all the procedures as some of the procedures
      may be identified at the time of execution of the audit.
         Understanding the client internal control system and identifying
          internal control weaknesses and audit risks
         Issues highlighted in the previous audit reports that are still
          unresolved
         Compliance testing to ensure that applicable policies, rules and
          regulations and complied with.
         Compliance with grant agreement.
         Use of sampling to select items for compliance testing and substantive
          testing
         Vouching payments on a test basis and check the payments for
          accuracy, completeness, valuation and ownership
         Compliance of PC-1 document
         Checking compliance with PPRA rules for the procurements made
          during the year.
         Comparison of actual expenditure with budgeted expenditure
         Prepare analytical procedures and Investigate where actual are more
          than budget appropriation.
         Investigate transfer payments to sub-offices and there utilizations.
         Performance audit procedures, if performance audit needs to be
          performed:
            o Identification of cost savings
            o Identification of services that can be reduced or eliminated
              Identification of programs or services that can be transferred to
              the private sector
            o Analysis of gaps or overlaps in programs or services and
              recommendations to correct gaps or overlaps
            o Feasibility of pooling information technology systems within the
              Department
            o Analysis of the roles and functions of the department, and
              recommendations to change or eliminate departmental roles or
              functions




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             o Recommendations for statutory or regulatory changes that may
               be necessary for the department to properly carry out its
               functions
             o Analysis of departmental performance data and performance
               measures
             o Financial, economic and technical appraisal of projects
             o Identification of best practices.

       The understanding of the accounting and internal control system will
       enable the auditor to 1) identify types of potential material
       misstatements, 2) considers factors that affect the risk of material
       misstatements, and 3) design appropriate audit procedures. Therefore,
       the auditor should obtain an understanding of the accounting and
       internal control system to identify and understand:
          Major classes of transactions
          How such transactions are initiated
          Significant accounting records and supporting documents
          Accounting and financial reporting process, from the initiation of
           significant transactions and other events to their inclusion in the
           financial statements.
       The audit procedures would include a combination of compliance testing
       (tests of controls) and substantive procedures (test of detail). The
       objective of test of controls is to evaluate whether a control operates
       effectively, whereas the objective of tests of detail is to detect material
       misstatements.


       The auditor is required to perform tests of control when the auditor’s risk
       assessment includes an expectation of the operating effectiveness of
       controls or when substantive procedure do not provide sufficient
       appropriate audit evidence. The auditor selects procedures to obtain
       sufficient appropriate evidence that the controls operated effectively
       throughout the period of reliance. The more the auditor relies on the
       operating effectiveness of controls in the assessment of risk, the greater
       is the risk of the auditor’s test of controls. In addition, as the rate of
       expected deviation from a control increases, the auditor increases the
       extent of testing of the control. The matters that may be considered in
       determining the extent of the auditor’s test of controls include the
       following:
          The frequency of performance of control by the entity during the
           period.
          The length of time during the audit period that the auditor is relying
           on the operating effectiveness of the control.

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         The relevance and reliability of the audit evidence to be obtained in
          supporting that the control prevents, or detects and correct, material
          misstatements at the assertion level.
         The extent to which audit evidence is obtained from tests of other
          controls.
         The extent to which the auditor plans to rely on the operating
          effectiveness of the control in the assessment of risk.
         The expected deviation from the control.
      The following are the types of controls to test:
       Financial reporting controls (including certain safeguarding and
        budget controls) for each significant assertion in each significant
        cycle/accounting application,
       Compliance controls for each significant provision of laws and
        regulations, including budget controls for each relevant budget
        restriction, and
       Operations controls for each operations control (1) relied on in
        performing financial audit procedures or (2) selected for testing by the
        audit team. The auditor also should understand performance
        measures controls, but is not required to test them. However, the
        auditor may decide to test them
      Substantive procedures are performed in order to detect material
      misstatements and include tests of detail of transactions, account
      balances, and disclosures and substantive analytical procedures.
      Substantive procedures are generally applicable to large volume of
      transactions that tend to be predictable over time, which includes a
      combination of tests of detail and analytical procedures. The auditor
      designs tests of details responsive to the assessed risks with the objective
      of obtaining sufficient appropriate audit evidence to achieve the planned
      level of assurance. In designing the tests of details, the extent of testing
      is ordinarily thought of in terms of the sample size, which is affected by
      the risk of material misstatement. However, the auditor may consider the
      use of selective sampling such as selecting large or unusual items from a
      population.
      In addition to the above mentioned audit procedures, analytical
      procedures may also be performed that would include analysis
      significant ratios and trend, consideration of relationships among
      elements of financial information and considering the relationship
      between financial information and non-financial information. The auditor
      will need to consider the testing of controls, over preparation of
      information used in applying analytical procedures, accuracy and
      reliability of information available.




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       Types of audits to be performed:
        Financial audit
        Compliance audit
        Performance audit (if required)

       System documentation:
        Cash/bank payment and receipts system
        Procurement of assets and other items
        Payroll
        Grant receipt and related expenditure
        Transfers
        Delegation of powers

V.     BUDGET ALLOCATION

A.     Current Expenditure
       The total federal budget for current expenditure amounts to Rs.
       17,328,855,000. Grant wise detail is as follows:
                                                                   Budget
                                                                allocation for
        Grant
                                    Particulars                    current
         No.
                                                                expenditure
                                                                     (Rs.)
         29      Education Division                                465,944,000
         30      Higher Education Commission                   14,332,521,000
         31      Education                                         612,659,000
         32      Federal Government Educational Institutions
                 in the Capital and Federal areas                1,917,731,000
                 Total                                         17,328,855,000

       Function wise and object wise classification of expenditure under each
       grant is as follows;

       Grant No. 29: Education Division (Rs. 465,944,000)

          Account                                                Revised
           Codes        Particulars                             Estimates
                                                                 2006-07
                                                               Pak Rupees
        1. Functional Classification
            095     Subsidiary Services to Education                  79,000
            096     Administration                               465,865,000
                                                                465,944,000

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       2. Object Classification
           A01      Employees Related Expenses                   161,577,000
           A02      Project Pre-investment Analysis                   50,000
           A03      Operating Expenses                           289,232,000
           A04      Employees Retirement Benefits                  1,600,000
           A05      Grants subsidies and Write-off Loans           1,000,000
           A06      Transfers                                        735,000
           A09      Physical Assets                                5,970,000
           A13      Repairs and Maintenance                        5,780,000
                                                                465,944,000
      Grant No. 30: Higher Education Commission (Rs. 14,332,521,000)

         Account                                            Revised estimates
                       Particulars
          Codes                                                 2006-07
                                                               Pak Rupees
       1. Functional Classification
           093       Subsidiary Services to Education          14,332,521,000
       2. Object Classification
           A03       Operating Expenses                          1,238,004,000
           A05       Grants subsidies and Write-off Loans       13,094,517,000
                                                               14,332,521,000
      Grant No. 31: Education (Rs. 612,659,000)
                                                                   Budget
         Account
                       Particulars                             appropriation
          Codes
                                                               in FY 2006-07
                                                                 Pak Rupees
       1. Functional Classification
           092     Secondary Education Affairs and                  34,295,000
                   Services
           093     Territory Education Affairs and Services        324,582,000
           097     Education Affairs and Services not              253,782,000
                   elsewhere classified
                                                                  612,659,000
       2. Object Classification
           A01      Employees Related Expenses                     100,735,000
           A02      Project Pre-investment Analysis                    400,000
           A03      Operating Expenses                              56,963,000
           A04      Employees Retirement Benefits                      100,000
           A05      Grants subsidies and Write-off Loans           412,142,000
           A06      Transfers                                       21,653,000
           A09      Physical Assets                                 12,381,000
           A13      Repairs and Maintenance                          8,285,000
                                                                  612,659,000

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       Grant No. 32: Federal Government Educational Institutions in the
       Capital and Federal areas (Rs. 1,917,731,000)

                                                                           Budget
           Account
                        Particulars                                    appropriation
            Codes
                                                                       in FY 2006-07
                                                                         Pak Rupees
        1. Functional Classification
            091     Pre-Primary and Primary Education                     472,114,000
                    Affairs and Services
            092     Secondary Education Affairs and Services              785,216,000
            093     Territory Education Affairs and Services              655,613,000
            096     Administration                                          4,788,000
                                                                       1,917,731,000
        2. Object Classification
            A01      Employees Related Expenses                         1,679,069,000
            A03      Operating Expenses                                   114,271,000
            A06      Transfers                                              8,839,000
            A09      Physical Assets                                       50,870,000
            A13      Repairs and Maintenance                               64,682,000
                                                                       1,917,731,000

       The offices / projects selected for the audit are as follows:

       1. Ministry of Education

            DDO         Name of the Offices/ Projects            Budget
            Code                                            appropriation for
                                                                current
                                                             expenditure in
                                                              FY 2006-07
            ID0314     Main secretariat                          115.9 Million
            ID0365     Federal Directorate of Education          213.8 Million
            DD032      Federal Government Educational           *1,917 Million
                       Institutions in the Capital and
                       Federally Administer areas
           *Includes 87.5% employees related expenses

          The sub offices carried out the audit of all the federal departments in
           the respective provinces with focus on the significant audit areas.




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      2. Higher Education Commission

                                                                      Budget
                                                                  appropriation
              DDO                                                   for current
              Code       Name of the Offices/ Projects            expenditure in
                                                                   FY 2006-07
             ID2157      University of the Punjab                     902.6 Million
             ID2161      University of Karachi                        765.4 Million
             ID2222      Promotion of research in Universities          705 Million
             ID2162      University of Sindh, Jamshoro                  647 Million
             ID2194      University of Engineering and                  622 Million
                         Technology, Lahore
             ID2195      University of the Peshawar                   597.7   Million
             ID2171      Inter University Academic Activities           590   Million
             ID2195      University of Agriculture, Faisalabad        572.1   Million
             ID2188      Comsat Institute of Information              238.8   Million
                         Technology, Islamabad
                                                          Total   5,640.68 Million

          The sub offices carried out the audit of all the federal departments in
          the respective provinces with focus on the significant audit areas.


C.    Significant audit risk areas:

      We tried to integrate the approaches for financial and compliance audits
      and simultaneously planned to perform performance audit so that
      effective utilization of financial resources can be ensured. Further the
      audit approach is more directed towards system based audit to address
      the system weaknesses.

      As discussed in the earlier section the expenditure are broadly classified
      in the current and development expenditure. We have focused more on
      development expenditure as huge investment has been made in
      development sector which if utilized efficiently will help the government
      in achieving their goals. The brief description of the areas to be covered
      but not limited to be as follows:

      Current expenditure is recurring expenditure of the                Ministry of
      Education departments listed above. For the purposes of           the audit we
      have focused on the i) operating expenses and the ii)             purchase of
      physical assets of the departments selected for the audit         in particular
      and the rest will be audited in general.


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       i) Risks involved in operating expenses:
           Illegitimate payments
           Improper classification of expenses in the heads of accounts
           Improper mode of payment
           Improper allocation of expenses

       Audit approach to address the risks involved in operating
       expenses:
       - Illegitimate payments:
           The risk could affect the management assertion regarding RIGHTS
           and OBLIGATIONS.
           Document the system for the sanction of expenditure and identify any
           non compliance from general financial rules.
           The expenses are compared against the budget allocations so that
           excess especially in the utilities and general which includes
           advertisement and miscellaneous can be critically analyzed.
           Ensure that each payment is supported by the proper contract duly
           approved and authorized by the competent authority.
           Ensure that the payments are made against the schedule of
           authorized expenditure, and the applicable laws and regulation.
       -   Improper classification of the expenses in the heads of the
           account
           The risk could effect the management           assertion   regarding
           CLASSIFICATION and PRESENTATION.
           Review the details of expenditure, select the sample from each major
           classification and check the classification according to the new
           accounting model.
       -   Improper mode of payment.
           The risk could effect the management assertion regarding EXISTENCE
           and OCCURRENCE
           Document the system recommended by the accounts manual and
           check the compliance in the departments/division.
           Verify on sample basis the expenditures from the bank statement.
           Obtain the list of expenditure paid in cash and obtain their
           justification.
       -   Improper Allocation Of Expenses
           The risk could effect the management assertion regarding VALUATION
           and EXISTENCE



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          Ensure with focus on advertisement expenses and miscellaneous
          whether the expenditure should be classified as capital expenditure or
          revenue expenditure as detailed in the audit code and IPSAS.

      ii) Risks involved in purchase of assets
           Violation of PPRA rules
           Inadequate valuation
           Incomplete records
           Inadequate utilization of resources
           Inadequate disclosures

      Approaches to address risks involved in purchase of assets:
      - Violation of PPRA rules
          This risk will affect the assertion of compliance with regulation and
          inadequate disclosure of facts.
          Document the system to call tenders and compare it with the bench
          mark provided in the PPRA rules.
          Inquire non-compliances
      -   In adequate valuation
          This risk will affect the assertion of valuation
          Check the useful life of the fixed asset and the depreciation rate
          applied with the market information for similar assets.
          Document the criteria for the recognition of the cost and compare it
          with international standards.
      -   Incomplete records
          This risk could affect the assertion of EXISTENCE
          Documents the system of recording the assets.
          Document the internal control applied on recording the assets.
          Check the items from records to ground and vice versa.
      -   Inadequate utilization of resources
          The risk will affect the assertion of Rights and Obligation.
          Ensure that the assets are maintained properly
          Ensure that assets are used for the purposes it is acquired.
          Ensure that assets are in the name of the project/department.
          Ensure that assets are insured or not.
          Ensure that warranty services are acquired when required during the
          warranty period.



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       -     Inadequate disclosure
             This will affect the assertion of classification and presentation and
             disclosure.
             Select a sample and ensure that the items are properly disclosed in
             the correct account as per the classification of New accounting model.
             Ensure that the assets are disclosed in accordance with financial
             reporting manual, and IPSAS.

       General audit approach:
        Prepare analytical procedures and Investigate where actual are more
         than budget appropriation.
        Investigate transfer payments to sub-offices and there utilizations.
        Document the system of revenue recording, from source document till
         deposit in the bank account.
        Ensure that the procurement of the contractor as per PPRA RULES
        Circularize confirmation for loan amount to the local offices of the
         donor agencies and obtain reconciliations

B.     Development Expenditure
       The total federal budget for development expenditure amounts to
       Rs.4,418,015,000. Grant wise detail is as follows:
                                                                Budget allocation
           Grant No.                   Particulars              for development
                                                                expenditure (Rs.)
             138       Education Division                          4,418,015,000
                       Total                                      4,418,015,000
       Function wise and object wise classification of expenditure under each
       grant is as follows;

                                                                       Revised
            Account
                         Particulars                                  Estimates
             Codes
                                                                       2006-07
                                                                      Pak Rupees
           1. Functional Classification
               091     Pre-Primary and Primary Educating                 58,189,000
                       Affairs and Services
               092     Secondary Education Affairs and Services         218,537,000
               093     Territory Education Affairs and Services       1,306,820,000
               095     Subsidiary Services to Education                 383,136,000
               097     Education Affairs and Services not             2,451,333,000
                       elsewhere classified
                                                                     4,418,015,000

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       2. Object Classification
           A01      Employees Related Expenses                           11,258,000
           A02      Operating Expenses                                2,229,602,000
           A03      Grants subsidies and Write-off Loans                798,627,000
           A06      Transfers                                            20,660,000
           A09      Physical Assets                                      88,113,000
           A12      Civil Works                                       1,247,403,000
           A13      Repairs and Maintenance                              22,352,000
                                                                     4,418,015,000

      The development projects selected for audit during year under review
      includes;

                                                                 Budget
       DDO Code      Name of the Offices/ Projects          appropriation for
                                                              development
                                                             expenditure in
                                                               FY 2006-07
       ID3185        1Basic   Education Community Schools         705 Million
       ID0292        1Madrassah   Reforms                         500 Million
       ID0346        Education for all                          1,378 Million
      1Apart  from normal audit procedures, performance audit of these
      projects will also be conducted

VI.   ISSUES HIGHLIGHTED IN PREVIOUS YEARS

A.    Ministry of Education
       Unauthorized expenditure
       Irregular payment to supporting staff
       Irregular expenditure without tenders
       Unauthorized investment by Federal Government Colleges
       Irregular expenditure on construction work
       Unauthorized collection on account of central admission test and
        expenditure there from
       Irregular expenditure
       Non accountal of funds
       Unauthorized expenditure out of Hostel Fund
       Non approval of Education Code by Ministry of Finance
       Unauthorized running of second shift and irregular retention /
        utilization of Government money
       Non recovery of money from teachers

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Chapter 15: Ministry of Education


          Non approval of fee structure from Ministry of Finance
          Unauthorized payment of medical allowance and house rent
           allowance and encashment leave
          Irregular expenditure on repair and maintenance
          Unauthorized expenditure over and above PC-1 allocation
          Unauthorized investment
          Excess payment to contractor
          Non disclosure of receipts
          Irregular retention of government receipts
          Loss due to withdrawal of public fund by submission of bogus bill
          Non-surrendering of unspent balances
          Unauthorized transfer of funds from development grant to non
           development grant
          Non recovery of 5% house rent charges
          Misappropriation in Federal Urdu University
          Non recovery of funds on account of violation of surety bond
          Unauthorized payment of salaries out of Student Fund
          Unauthorized retention and utilization of bus fee
          Collection of tuition fee in violation of government policy
          Double charging of fee and extra payment to teaching staff
          Irregular authorization for construction of canteen
          Unauthorized expenditure on payment of house rent ceiling out of
           Student Fund
          Non recovery of funds from scholarship holders
          Unauthorized transfer of funds to PWD
          Unauthorized appointment in contraventions of NCA rules

B.     Higher Education Commission

          Release of grant-in-aid without obtaining audited statements
          Non adjustment of funds released for sport activities
          Non-revalidation or surrender of closing balance under development
           and non-development grants
          Non recovery of amount paid by HEC as share of Connectivity
           Charges on behalf of Universities
          Transfer of funds from recurring grant to development grant and
           unnecessary retention
          Failure to collect funds on account of difference of profit
          Non refund of unspent balances of closed projects

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          Un-authorized opening of Foreign Currency Bank Account
          Unauthorized retention of public funds
          Unauthorized expenditure not provided in PC-I
          Recovery on account of irregular appointment of Liaison Officer
          Manipulation in tendering process
          Mismanagement in dealing with expatriate professors
          Fraudulent drawl of funds

VII.   Time Schedule

A.     Ministry of Education

        Planning                                   10 days
        Execution – Fieldwork                     122 days
        Reporting                                  11 days
        Holding DAC Meeting                        28 days
        Total                                     172 days


Particulars                            Duration Start Date        Finish Date
                                       172 days        3-Jul-07     18-Jan-08
Permanent File                         5 days          3-Jul-07       7-Jul-07
Planning File                          5 days          9-Aug-07      14-Aug-07
Execution                              122 days       16-Jul-07      4-Dec-07
Main Ministry                          6 days         16-Jul-07      21-Jul-07
FBISE                                  6 days         23-Jul-07      28-Jul-07
Federal Directorate of Education       10 days        30-Jul-07       9-Aug-07
Basic Education Community Schools      20 days       10-Aug-07        1-Sep-07
Madrassah Reforms                      20 days         3-Sep-07      25-Sep-07
Education for all                      20 days        26-Sep-07      18-Oct-07
Academy of Letters                     6 days         19-Oct-07      25-Oct-07
Interboard committee of chairman       6 days         26-Oct-07       1-Nov-07
NISDE                                  6 days          2-Nov-07       8-Nov-07
Pakistan Academy of Science            3 days          9-Nov-07      12-Nov-07
Polytechnic Instutute for Women        4 days        13-Nov-07       16-Nov-07
Department of Library                  4 days        17-Nov-07       21-Nov-07
Pakistan National Council for
UNESCO                                 4 days        22-Nov-07       26-Nov-07

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Chapter 15: Ministry of Education



Particulars                             Duration Start Date      Finish Date
Technical panel on Teacher's
Education                               3 days       27-Nov-07      29-Nov-07
Academy of education - Planning
management                              4 days       30-Nov-07       4-Dec-07
Reporting                               11 days       5-Dec-07     17-Dec-07
Prepare AIR                             8 days        5-Dec-07      13-Dec-07
Send AIR to PAO                         3 days       14-Dec-07      17-Dec-07
DAC                                     28 days      18-Dec-07     18-Jan-08
Hold DAC meeting                        21 days      18-Dec-07      10-Jan-08
Sign Minutes of meeting                 1 day        11-Jan-08      11-Jan-08
Complete Working Papers                 2 days       12-Jan-08      14-Jan-08
Scan WP Evidence                        2 days       15-Jan-08      16-Jan-08
Finalize Audit Report                   2 days       17-Jan-08      18-Jan-08


B.     Higher Education Commission

        Planning                                   10 days
        Execution – Fieldwork                      76 days
        Reporting                                   7 days
        Holding DAC Meeting                        28 days
        Total                                      121 days


Particulars                             Duration Start Date      Finish Date
                                        121 days     16-Jul-07      3-Dec-07
Permanent File                          5 days       16-Jul-07      20-Jul-07
Planning File                           5 days       21-Jul-07      26-Jul-07
Execution                               76 days      27-Jul-07      23-Oct-07
Main                                    10 days      27-Jul-07       7-Aug-07
Promotion of research in Universities   10 days       8-Aug-07      18-Aug-07
Inter University Academic Activities    10 days      20-Aug-07      30-Aug-07
Comsat Institute of Information
Technology, Islamabad                   10 days      31-Aug-07      11-Sep-07
AIOU                                    6 days       12-Sep-07      18-Sep-07
QAU                                     6 days       19-Sep-07      25-Sep-07
Int'l Islamic University                6 days       26-Sep-07       2-Oct-07
NUML                                    6 days        3-Oct-07       9-Oct-07

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Particulars                     Duration Start Date     Finish Date
Karakoram University            6 days      10-Oct-07      16-Oct-07
Federal Urdu University         6 days      17-Oct-07      23-Oct-07
Reporting                       7 days     24-Oct-07       31-Oct-07
Prepare AIR                     5 days      24-Oct-07      29-Oct-07
Send AIR to PAO                 2 days      30-Oct-07      31-Oct-07
DAC                             28 days     1-Nov-07       3-Dec-07
Hold DAC meeting                21 days      1-Nov-07      24-Nov-07
Sign Minutes of meeting         1 day       26-Nov-07      26-Nov-07
Complete Working Papers         2 days      27-Nov-07      28-Nov-07
Scan WP Evidence                2 days      29-Nov-07      30-Nov-07
Finalize Audit Report           2 days       1-Dec-07       3-Dec-07




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                                                             Annexure A
                                Ministry of Education

                                    Organization structure




Legend:
PMU :     Project Monitoring Unit
PESR : President’s Education Sector Reforms
JS      : Joint Secretary
JEA     : Joint Educational Adviser




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