Audit experience in the field audit_ streamlining the review of

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                   Quarterly Journal of the Office of the CAG

                    Issue-4     Volume 14    April-June, 2006

Office of the Comptroller and Auditor General of Bangladesh
The current quarter saw some important events taking place
in my department.

The 6th meeting of the 7th Asian Organisation of Supreme
Audit Institutions (ASOSAI) Research Project titled ―Audit
Quality Management System (AQMS)‖ was held at Dhaka
during 3-4 April, 2006. Hosted by the Supreme Audit Institution (SAI) of Bangladesh, the
meeting was attended by 15 participants from China, India, Malaysia, Pakistan,
Philippines, Yemen and Bangladesh to examine the draft report of the project to be
tabled at the 36th ASOSAI Governing Board Meeting for approval and thereafter at the Xth
ASOSAI Assembly for adoption both to be held at Shanghai, China in September, 2006.
It was my pleasure to inaugurate the two-day meeting on April 3 with a call to all ASOSAI
members to make the project successful through effective use of the out-puts so
laboriously produced by the framers of AQMS Guideline. I particularly mentioned of the
meaningful blending of the elements of AQMS with Bangladesh SAI‘s Strategic Plan
(2003-2006) in order to derive effective results. I told the meeting that SAI Bangladesh is
a vanguard of the successful execution of ASOSAI initiated AQMS.

CAG has been made Chairman of a 5 member Bangladesh Judicial Services Pay
Commission to review pay, allowances and other financial benefits of the members of the
judicial services and make necessary recommendations. Finance Secretary,
Establishment Secretary, Law, Justice and Parliamentary Affairs Secretary and Registrar,
Supreme Court are the other members of the commission.

A series of workshops were organised by CAG office on ‗Achieved and Not-achieved‘ at
Sylhet on April 27, Tangail on May 22 and Rangpur on June 17, 2006. It was a stock
taking exercise to measure the success and failure stories of the audit directorates
engaged in implementing CAG‘s Strategic Plan. I presided over all the workshops where
the Deputy Commissioners along with cross section of officials belonging to the
departments of different ministries stationed at the district headquarters took active part
in the deliberations and made substantive contributions. In my concluding remarks I
stressed on the following

          more audit personnel could be diverted to field audits keeping a reasonable
           workforce at the audit directorate headquarters for ancillary jobs
          audit strategy should emphasise on intensive audit by rationalising the
           number of auditable units and strengthening the audit teams on the basis of
          quality of audit rather than quantity should be aimed at
          entity wide audit focusing on the ministries in Dhaka and vertically going down
           should be pursued
          performance audit directorate should prepare a concrete work-plan as also an
           office manual for effective functioning
          foreign aided project audit directorate should be careful about ensuring quality
           of audit while responding to the donors‘ expectation of timeliness
          Quality Assurance Teams (QAT) should be renamed as ―Quality Assurance
           Committees (QAC)‖ and there should be 2 QACs, one for advance paras and
           the other for other than advance paras

          audit programmes should include a preliminary survey to gather an overview
           of the auditee entity before the commencement of audit
          audit teams should report to the headquarters as and when asked for by the
           directorate head office during ongoing audit to enable DGs to make interim
           assessments of the works done so far and give necessary onward guidance

The Deputy Commissioners of the districts laid importance on the following
          audit planning could be prepared associating the auditees to make it more
          more expert level physical verification on public works and rural development
           programmes could be undertaken during audit

The work-shops held outside Dhaka gave ample opportunities for
         reviewing the successes and failures of the audit directorates
         free and frank discussions with the local auditors directly involved with field
         taking note of important suggestions given by the local stakeholders

I visited Kuwait during 7-9 May, 2006 at the invitation of Mr. Barrakh Kh. Al Marzouq,
President, State Audit Bureau of Kuwait and took part in the following activities
          held extensive discussions with Mr. Marzouq at the State Audit Bureau office
           Kuwait on matters of mutual co-operation and assistance between the SAIs of
           Bangladesh and Kuwait
          visited SAB under construction headquarters site called ―Shuwaikh-Kuwait‖
           where SAB is expected to start functioning from July 1, 2007. Construction
           having been started on December 1, 2003, I hope, the emerging campus will
           be an example of massive architectural excellence and SAB leadership
          called on His Excellency Misahri Al Anzeri, Acting Chairman of the National
           Assembly of Kuwait accompanied by SAB President Mr. Marzouq
          called on His Excellency Sheikh Nasseer Al Mohammad Al Ahmed Al Sabah,
           the Prime Minister of Kuwait accompanied by SAB President Mr. Marzouq
          took part in a live interview programme on Kuwait TV

The visit gave me an excellent opportunity of
          knowing what is happening at SAB Kuwait and
          telling what we are doing at SAI Bangladesh

A workshop on ‗Interaction between Auditor and Auditee Organisation for Improved Audit
Environment‘ was organised at Dhaka by ―Modernization of the Ministry of Water
Resources Financial Management Capability Project‖ funded by the Canadian
International Development Agency (CIDA). Three papers namely “Prompt and effective
disposal of audit objections of Bangladesh Water Development Board (BWDB)”,
“Audit experience in the field audit, streamlining the review of audit reply and the
processes of settlement of audit observations” and “A few appropriate
recommendations for creating improved auditing environment” were presented.
Valedictory session of the workshop was held on June 1, 2006 at Dhaka Sheraton Hotel
with CAG as chief guest and Syed Mohammad Zobaer, Secretary, Ministry of Water
Resources and His Excellency Robert Beadle, Acting High Commissioner and Head of
Development Co-operation, Canadian High Commission, Dhaka, Bangladesh as special

guests. I emphasised on reciprocal capacity enhancement of both auditor and auditee
enabling matching collaborative benefits.

Commissioner, Anti Corruption Commission Prof. Moniruzzaman Miah attended a
meeting at CAG office on June 6, 2006 to discuss the ways and means to minimise the
woes of the government school and college teachers for ensuring hazard free pension
disbursement. Besides CAG, Md. Momtajul Islam, Secretary, Ministry of Education was
present during the meeting.

            Financial Management Reform Programme (FMRP), Component-1 recently
            submitted ―Summary Findings—Interim Audit on Four Pilot Ministries‖ and
            ―Proposed Structure for Medium Term Budgetary Framework (MTBF) Audits
            2006/07‖ to CAG for consideration which are under scrutiny.

FMRP organised ―Pilot Quality Training Award Ceremony‖ on June 19, 2006 at Financial
Management Academy for the participants of Para Accounting Course held in 2004 and
2005. CAG as chief guest distributed awards to 24 top position holders of different
groups out of 139 which included both certificates and cash incentives. I made the
following submissions :
     selection of participants should be on the basis of eligibility and aptitude
     the trainees should be attached with different accounts offices for acquiring
      practical and on the job experience
     on completion of training the participants should automatically be made trainers
      at their work places and engaged in transferring their knowledge through the in-
      house training facilities already institutionalised in all the accounts and audit
     continuous feed-back as to the effectiveness and sustainability of training should
      be pursued

I recall with sadness the sudden demise of Kazi Zahiruddin Ahmed on April 5, 2006. He
was serving the other day as Additional Deputy CAG before going on leave preparatory
to retirement. He was an officer of excellent quality and high integrity.

We are presently undergoing a spell of reforms, both internally through CAG‘s Strategic
Plan and externally through FMRP. We need to make an immaculate blending of the both
to reach our goals cost-effectively. I felicitate all my colleagues for their hard work and full
support to all our endeavours.

June 30, 2006                                                                     Asif Ali
                                            Comptroller and Auditor General of Bangladesh


 Audit experience in field audit, streamlining review of audit reply     1-4
         and process of settlement of audit observations
Mohammad Moslem Uddin

Settlement of Audit Observations in the Railway Audit Directorate       5-12
                      Manindra Chandra Datta

Summary on „Auditing Perus‟s Cultural Heritage Assets‟                 13-16
                      Dewan Sayeedul Hasan

Summary on „100 Years Development of National Audit Institution        17-21
of Malaysia‟
M. Mahbubul Hoque

Summary on National Audit Office (NAO), UK report on „The              22-25
Financial Auditing and Reporting - a general report of the
Comptroller and Auditor General for the year 2004–2005‟
Md. Azizul Hoque

     A brief on the “ITEC Training Programme on Government             26-27
               Accounts and Financial Management”
6-17 March, 2006, New Delhi, India
Md. Manirul Islam

Summary on "Japan Bank for International Cooperation (JBIC) in         28-32
Md. Khurshid Alam Patwary

Summary on Annual Report "K-PACT 2005 - We believe"                    33-36
Selina Rahman

Workshop on „Dealing with Fraud and Corruption in Auditing‟            37-40
December 12-17, 2005, Lahore, Pakistan

Md. Golam Rahman

Messages                                                               41-42

     Audit experience in field audit, streamlining review of audit
       reply and process of settlement of audit observations

                                 Mohammad Moslem Uddin

1.        Introduction

          Foreign Aided Project Audit Directorate (FAPAD) is one of the ten audit
          directorates under the office of the Comptroller and Auditor General of
          Bangladesh. Established in 1982, this directorate has been entrusted with the
          responsibility of auditing the accounts of all foreign aided projects in Bangladesh.
          Every year all development projects included in the Annual Development
          Programme (ADP) of the government come under the audit jurisdiction of Foreign
          Aided Project Audit Directorate.

          The working arrangement in Foreign Aided Project Audit Directorate is different in
          comparison to other audit directorates. The other audit directorates have to
          produce audit report to meet the audit requirement of the Parliament. On the
          other hand, audit responsibility of Foreign Aided Project Audit Directorate is two-
          fold. First, it has to meet the audit requirement of the National Parliament.
          Secondly, as per provision of the loan agreement, the development partners and
          the loan giving countries are to be furnished with audit certificates on schedule.
          Moreover, unlike other audit Directorates, FAPAD has to make comments on the
          Financial Statement, Statement Of Expenditure (SOE), Special Account, Non-
          expendable equipments, Combined Delivery Report (CDR) and other specific
          requirements of the development partners.

2.        Objectives of public sector audit

          The public sector auditors‘ audit objectives are to give an independent opinion on

           Whether the statements of accounts show a true and fair view of the financial
            position of the audited entity and its income and expenditure for the year in
            question and have been properly prepared in accordance with appropriate
            rules and regulations

           The adequacy of the audited body‘s arrangements to ensure economy,
            efficiency and effectiveness

           The efficacy of the audited body‘s financial management systems

           The adequacy of the audited body‘s arrangements for preventing and
            detecting fraud, corruption and its overall internal control mechanism

           The adequacy of the audited body‘s arrangements for ensuring the legality of
            transactions that might have a financial implication

           The adequacy of the audited body‘s system of collecting, collating and
            recording accounting data and publishing financial statements and reports
            pursuant to appropriate rules and regulations

    Director General, Foreign Aided Project Audit Directorate

3.   Development Partners‟ accounting requirement

      Project accounts must be maintained following International Accounting
       Standards (IAS) or any other standard, which is generally accepted by the
       international community. Such standards, once adopted, should be followed
       consistently for the duration of the project

      The accounting records of the project should be maintained in such a
       manner, which is transparent and auditable, and format should be such that
       the resources and the expenditure are presented in the manner set out in the
       loan agreement

      Project Financial Statements should follow the classifications mentioned in
       the loan agreement. Financial statements should be prepared on the basis of
       books of accounts

4.   Development Partners‟ audit requirement

     The development partners have become increasingly concerned about the
     utilization of funds they provide. They have suggested a number of procedures to
     be followed while incurring expenditure under the Development Credit Agreement
     (DCA). Some agencies like World Bank, Asian Development Bank (ADB), United
     Nations Development Programme (UNDP), United States Agency for
     International Development (USAID) have issued handbooks setting out their
     requirements. Generally speaking, a development partner‘s audit requirement
     can be summarised as follows

      The audit will be conducted following internationally accepted auditing
      Funds have to be used in accordance with the conditions of the relevant loan
       agreement with due attention to economy and efficiency
      Funds should be used only for the purposes for which it was provided
      All necessary supporting documents, records, and accounts have to be kept
       in respect of all programmes
      The financial statements should be prepared following acceptable accounting
       standards and should give true and fair description of the financial position of
       the project
      In the case of some Development Partners, a separate opinion is to be
       provided for the Statement of Expenditure (SOE)

5.   Documents examined by the Foreign Aided Project Audit Directorate

     The following is a list of generic documents which the auditors examined during
     their scrutiny

     Permanent documents/records
      Loan agreements
      Grant agreements
      Project Proforma (PP)/Technical Assistance Project Proposal (TAPP)/
       Development Project Proposal (DPP)
      Staff Appraisal Report(SAR)
      Mission Review Report
      Consultant‘s study report

     Yearly documents/ records
      Financial Statement/Combined Delivery Report (CDR)
      Withdrawal Applications

      Statement of Expenditure
      Government allocation orders
      Summary of withdrawal expenditure [Direct Project Aid (DPA)/Reimbursable
       Project Aid (RPA)/Statement of Expenditure (SOE)]
      Bank statement on project account/ special account
      Donors‘ advice

     The project authorities/executors are also expected to present the following to the
     Essential documents/ records
      Receipts and disbursement ledger
      Payroll register
      Customs Duty (CD)/Value Added Tax (VAT) control register
      Advance register
      Petty cash ledger
      Cash book

     Desirable documents/ register
      Supplier‘s ledger
      Measurement Book (MB)
      Inventory control register
      Fixed asset register
      Logbook of vehicles

6.   Audit experience in the field audit

     The actual experience of audit while undertaking field audit are as follows
        Audit is not looked upon as an aid to management
        Auditee is generally uninterested in the work of the auditor
        Financial statement is not prepared on time by the auditee
        Financial statement is not prepared correctly
        Cash book is not maintained properly
        Delay in producing required vouchers, accounts, and relevant documents by
         the auditee affects the progress of audit work
        Record keeping is not audit friendly
        Response to audit query is not immediate, detailed, and well documented.
         Sometimes reply is not given at all
        Discussion on Local Audit Report (LAR) takes place on the last day of audit
         programmes. Experience shows that in many cases auditee does not want to
         discuss the report in detail
        Instead of substantial answer to the Local Audit Report (LAR), the auditee
         responds by saying that reply would be given in due course
        Recurrence of similar type of irregularities
        Correct information is not furnished to the audit party regarding the number of
         outstanding paras in respect of the project
        Sometimes accounts personnel are not well conversant with necessary rules
         and regulations
        Physical verification is not encouraged

7.   Problems regarding review of audit reply and settlement of audit

      Broadsheet reply is not given on time and is not given properly. Sometimes it
       is not supported by necessary documents
      Similar reply is repeated over and over
      Actions are not taken against those responsible for irregularities

           Administrative and post facto sanction is not given
           Write off method is not resorted to
           Verified treasury chalan is not provided
           Corrective measures are not taken
           In case of DPA expenditure, statement of expenditure is not obtained from
            the development partner
           Delay in sending minutes of bilateral and tri-partite meeting
           Lack of initiative on the part of Project Director to arrange bi-lateral meeting
           For Serious Financial Irregularities (SFIs) broad sheet reply is not given from
            the ministry in time
           Department sends reply on SFIs directly, not through the Ministry
           Minutes of the tri- partite meeting is sent by the Department not by the
            Ministry which is the acceptable system

        Audit Directorate
         Delay in taking action on the minutes of bilateral and tri-partite meeting
         Delay in the disposal of broadsheet reply received from the Ministry and the
         Delay in conducting physical verification following recommendation of bi-
          lateral and tri-partite meeting

8.      Streamlining the review of audit reply and the process of settlement of audit
         Broadsheet reply received from Department and Ministry should be reviewed
          by the audit directorate without delay
         The list of audit observations should be updated project wise and year wise
         List of audit observations should be reconciled
         Bi-lateral and tri-partite meeting should be organised on a regular basis
         Minutes of bi-lateral and tri–partite meeting should be sent to audit directorate
          within three days
         Audit directorate should respond to minutes of the meeting within three days
         Project Director should arrange bi-lateral meeting when the audit team is
          conducting audit
         Crash programme should be taken by the Project Director to arrange bi-
          lateral meetings
         Broadsheet reply should be given with proper explanation and supported by
          appropriate evidence
         For SFIs, broadsheet reply should be given by the Ministry on every occasion


    Audit Code
    Foreign Aided Project Audit Directorate Financial Audit Procedures Manual

        Settlement of Audit Observations in the Railway Audit
                                  Manindra Chandra Datta

Audit Definition: Quoted from Audit Code

Audit includes an examination of the books of accounts, other documents, stores, assets
etc. relating to the receipts and expenditure of the government, statutory public
authorities and public enterprises with a view to ensuring that rules and orders framed by
the competent authority in regard to financial matters have been followed; that sums due
have been properly assessed, realised and brought to account; that expenditure has
been incurred with due regularity and propriety; that assets have been properly utilised
and safeguarded, that public resources have been used economically, efficiently and
effectively and that the accounts truly represent facts.

Audit Observations

A written expression on any matter which to the judgments of the auditor is material and
which is supported by evidence.

Audit Reply

Written response of the audited organisation to the observations raised by audit.

In this handout an attempt has been made to highlight on issues of conceptual framework
of audit observations and their settlement, steps of settlement of audit observations of the
Railway Audit Directorate, and the action plans that are underway to settle audit

Raising Audit Observations

It is ensured that no audit observation is raised without consultation with the auditee. The
written replies to the queries have been made mandatory for observations to be included
in the Local Audit Report (LAR). The report is ―seen and discussed‖ in the audited
organisation and the agreed report is given to the auditee before leaving the unit audited
and a copy is sent to the headquarter for further processing the results of audit. After
receiving the LARs from the audit parties, the reports are scrutinised thoroughly. Upon
completion of review, the Serious Financial Irregularities (SFI) are transmitted to the
Principal Accounting Officer (PAO)/Secretary of the line ministry/division for
response/comment on the observations. This is called Advance Para. When no reply is
sent or the reply is not satisfactory then it is developed into Draft Para. For issue-based
and performance audit reports LARs are issued within 7 to 10 days of completion of
audit. And audit findings are discussed by the Quality Assurance Teams (QATs) of the
headquarter and with the concerned Director General. Then the entire report is sent to
the respective Secretary of ministry/division treating the report as ‗Advance Para‘. A
copy is also sent to the head of the audited unit/organisation. Respective Director
General discusses such LAR (s) with the concerned Secretary. Thus we see that audit
observations are basically of two types: Ordinary audit observations and Serious
Financial Irregularities (SFIs). Unsettled SFIs known as draft paras are included in
the audit report with the approval of C&AG and these are discussed in the PAC

    Director General, Railway Audit Directorate

At the final stage, a demi official letter is written to the PAO/Secretary for drawing his
personal attention to the irregularities. If no reply/no satisfactory reply is obtained then
ministry wise draft audit reports are prepared by such draft paras and are forwarded to
the Comptroller and Auditor General (CAG) for approval. For finalising the results of audit
generally 90 and 60 days are allowed for annual audit and issue
based/special/performance audits respectively. But in reality the time automatically
increases for responses to and from the auditor and auditee. So it is clear that
preparation of the draft report (audit report) proceeds through a number of steps before
reaching the final published version.

Settlement of Audit observations

Spot Disposal during Audit:
    Audit observations can be settled during audit when a query is issued and when
     necessary disposing actions are taken at the instance of audit. The audit teams
     on verification of records, documents etc can dispose audit observations.
    On the last day of audit there is ample scope to settle the observations while
     these are seen and discussed and the audit teams are shown the recovery,
     adjustment or rectification of errors and satisfactory measures are taken at the
     end of the auditee.

Disposal in Headquarter
Audit observations can be settled through broadsheet reply if correct reply is initiated
promptly providing sufficient documentary proof of realisation of money, adjustment or
other satisfactory actions are taken.

Disposal in the Meeting
Disposal of audit observations through bi-lateral and tri-partite meeting had been initiated
since September 14, 1986. The ministries/divisions can hold regular meeting with the
audit directorate for unsettled observations.      Quarterly review meeting of PAOs is
supposed to be held to review the positions of unsettled observations.

Disposal of audit observations by the Parliamentary Committees
PAC [Public Accounts Committee], PUC [Public Undertakings Committee], EC [Estimates
Committee] derives legitimacy from the Rules of Procedure of Parliament. Rules 233,
234 and 235 of the Rules of Procedure of Parliament specify the functions and formation
of these three committee. The main functions of PAC, PUC and EC are

   PAC               To deliver upon ‗Appropriation Accounts‘ and the annual ‗Finance
                       Account‘ of the Government.
                     To deliver upon CAG‘s Audit Reports

   PUC               To examine the reports and accounts of the ‗public undertakings‘
                       and to check that affairs of the public undertakings are being
                       managed in accordance with sound business principles and
                       prudent commercial practices.
   EC                The functions of the EC are to report what economies;
                       improvements in organisation, efficiency or administrative reform,
                       consistent with the policy underlying the estimate may be effected
                       to suggest alternative policies in order to bring about efficiency
                       and economy in administration.

Unsettled Audit Observations on Bangladesh Railway : A Statistics

As seen from the record, the total number of audit observations raised since December
16, 1971 to December 31, 2004 was 51,163. The number of observations settled during
the aforesaid period was 7,949. In the year 2005, the number of new observations
included was 835 and the number of observations settled was 5,493. As on December
31, 2005 the total number of unsettled observations was as shown below

              Ordinary Observations                                36,614
              Serious Irregularities (AP)                             590
              Observations included in the Audit                    1,352

The total number of observations settled from the month of January to April 2006 is 3072
in which the observations of the audit reports are 184. The Committee on Public
Accounts settled these observations in the meetings held on February 28 and April 25,
2006. There are 23 observations, which have been recommended for settlement by the
tripartite committee and will be placed in the next PAC meeting. However, the number of
outstanding audit observations as on June 30, 2006 is 33,872.

The broad classification of the observations are
          Theft
          Defalcation
          Shortage
          Wastage
          Irregular payments
          Non-recovery of Value Added Tax (VAT) and Income Tax (IT)

Others include overpayment of pay and allowances, inadmissible telephone bills and
facilities, unauthorised use of vehicles, unauthorised occupancy of government
accommodation, irregularities in procurement, contract, short/non-deposit of station
income, tampering in deposit documents etc.

Problems of Accumulated Audit Observations

The accumulated audit observations are not only a problem for the auditee but also a
serious problem for the audit directorate.

Firstly, the existing manpower in the Railway Audit Directorate is 109 out of 211 (52% of
the sanctioned strength). Perusing the observations is almost impossible in the declining
manpower. Moreover, out of 109 manpower 4 officers have been engaged in the pilot
audit of Financial Management Reform Programme (FMRP). By the end of December
2006 nine more personnel including one Deputy Director will go on retirement.

Secondly, as majority of the existing manpower are engaged in the follow up of audit
observations, issue based and performance audit issues are difficult to undertake.

Thirdly, for the aforementioned reasons the coverage of the compliance audit has to be
kept limited and this cannot be properly supervised and monitored. As a result, it is
difficult to prepare quality audit reports.

Fourthly, it has been ascertained that there are many trivial audit observations most of
which are insignificant and in many cases the observations are of procedural lapses.
Further scrutiny may help dispose off the observations.

Problems of Settlement of Audit Observations

From the aforesaid discussions we see that there are ample opportunities of settling audit
observations at the different stages of conducting and processing the results of audit. In
spite of that a large number of audit observations remain unsettled. The causes are as


    The main cause is that Bangladesh Railway could not prepare the lists of
     unsettled audit observations year and unit wise/department wise and could not
     reconcile the accumulated observations with the Railway Audit Directorate.

    The Railway administration has given the responsibility of settlement of audit
     observations to the Additional General Managers at the zonal level and to the
     office of the Additional Director General (ADG) (Finance), Bangladesh Railway at
     the head quarters. The Heads of the departments with FA&CAO jointly prepares
     the broadsheet replies, conduct inquiries where necessary, solely prepares the
     report of the unsettled audit observations. The departments against which
     observations are raised are supposed to take necessary initiative for settlement
     of audit observations.

    The auditees‘ apprehension of audit consequences give rise to suspicion to
     audit. In some cases, however, we observed auditee‘s lack of care about audit
     observations. Moreover, many auditees believe that auditors are not qualified to
     review the auditees‘ activities which is also accepted by audit and relevant
     information, in some cases, are not provided to the auditors timely. The tendency
     is to make delay in furnishing information.

    In most cases, clear written replies to the queries are not given to the auditors
     during the conduct of audit. Even on the last day of audit there are instances that
     the heads of the offices are found reluctant to discuss the observations with the

    It is no denying the fact that the general tendency of the Railway administration is
     to make delay in initiating prompt response to audit recommendations and taking
     necessary actions against those who are involved in the audit observations.
     Broadsheet replies are not furnished timely and properly.

    Replies, in some cases, are not supported by sufficient appropriate evidences .
     There is inordinate delay in the cases of realisation of money involved with the

    Normally the tendency on the part of the administration is to await the
     examinations of audit observations. Even the recommendations of the
     parliamentary committees, in some cases, are not acted upon .

    The other key problems are
          -   Organizational -Lack of required number of efficient staff for dealing with
          -   Weak internal control - a. Absence of audit committee
                                       b. Internal audit

Auditors‟ limitations

    The Railway Audit Directorate could not prepare lists of year and unit wise
     (department wise) unsettled audit observations specifying the nature of

      observations. Moreover, there are many observations, the replies of which are
      lying unattended in the Director General, Railway Audit Directorate.
    To date the main thrust of audit remains to be compliance and financial. The
     traditional mindset of the auditors to looking for trivial nature of observations to
     some extent exists.
    Auditors, in most cases, lack [professional knowledge and expertise] a genuine
     interest in understanding the auditee‘s problems. Observations are often raised
     without considering the reality of the situation and its objectivity.
    Absence of quality audit reports because of lack of understanding about the
     functions of the auditees. The auditor‘s lack of experience increases the chance
     of reporting deficiencies even when they do not exist.
    Delay (in some cases) in giving feedback to auditee‘s response
    The auditors own behavior towards the auditee is a primary cause of conflict of
     auditor-auditee relationship

    Psychological unwillingness to settle audit objection on the spot

    Reviewing the minutes in audit headquarters and changing the decisions

    Unusual delay in issuing settlement letters from audit office

Remedial Measures

    Developing relationship between auditor-auditee
    Strengthening the administrative response to audit, initially during the conduct of
     audit and later by prompt and adequate follow up of the audit findings
    Making bi-lateral and tripartite meetings effective and issuing minutes of the
     meetings promptly

    Issuing settlement letters at an early time
    Holding quarterly review meetings of PAOs regularly and reviewing follow-up
     actions of PAC recommendations
    Strengthening Internal Control System

          -   Formation of Audit Committee
          -   Strengthening Internal Audit

Recent Steps Taken by the CAG Office

    Audit programmes made realistic and mandays rationalised
    Audit teams briefing regularly held and checklists provided
    Relevant in-house training are conducted
    Senior officers‘ involvement in auditing ensured

    Auditees involvement in planning (specially for issue-based and performance
     audits) introduced
    Conducting performance audit alongside financial and compliance audits
    Audit teams work inspected, supervised and monitored

    Issuing of query sheet and getting written replies made mandatory

    Issue of Local Audit Report (LAR) on the last day of audit made mandatory

    Scrutinising the LARs by the QAT and further scrutiny by Director General of the
     respective directorate made compulsory

    In case of need, discussion with the Secretaries/ Principal Accounting Officer by
     the respective DG with the LARs initiated.

    Audit quality further assured by Central Quality Assurance Team (CQAT) in
     C&AG office

    Crash programmes implemented in all the audit directorates to dispose off
     accumulated unsettled audit observations. Audit observations are settled in the

    Tri-partite meetings regularly held for settlement of audit observations included in
     the audit reports submitted to the Parliament and feedback informed to PAC

Action Plan of the Railway Audit Directorate

In spite of implementing the crash programme upon the instructions by the office of the
CAG and the demand from the Parliamentary Committees (PAC, PUC, EC) to settle audit
observations, the progress is not satisfactory. On this backdrop the Railway Audit
Directorate has taken the following action plans:

First phase by July 15, 2006

    Eight (8) compliance audit teams have already been withdrawn from the field at
     the end of April 2006
    A small number of manpower have been engaged in the administrative functions
     (in the headquarter and the regional offices) and processing the results of
     vouching audit
    The remaining manpower have been engaged in preparing lists of year and unit/
     department wise unsettled audit observations by June, 2006
    The lists so prepared by June 2006 shall be reconciled by July 15, 2006 with
     Bangladesh Railway
    There are as many as 7 types of general audit observations (e.g. overstayal in
     the Railway accommodation, selection grade given to the sub-assistant
     engineers, overtime of Railway drivers, irregular use of transport by General
     Managers etc) that are being referred to the CAG, Ministry of Finance (MOF),
     PAO, DG, Railway and ADG (F). Settlement of one observation in each category
     will help reduce three to five hundred observations on an average of the same
    The on-going crash programme of settlement of audit observations has been
     strengthened. The frequency of holding meeting has been increased

Second phase by September, 2006

On completion of reconciliation of the total number of accumulated audit observations
with Bangladesh Railway within July 15, 2006, the following action plans will be taken

     At least two (2) tripartite meetings will be arranged monthly for settlement of audit
      observations included in the audit reports of 1971-72 to 1989-90. The concerned
      Deputy Directors of the Railway Audit Directorate will liaison with the Joint
      Secretary, Ministry of Communication and attend the meetings.

     The Director General, Director and three Deputy Directors [Dhaka, Chittagong
      and Rajshahi] will review the lists of ordinary unsettled observations. A general
      guideline that has been prepared is annexed (Enclosure-1). On the basis of the
      guidelines the observations will be settled by the observations settlement groups
      to be formed in the head office and regional offices.

     In the head office and regional offices about 20 different groups will be formed for
      settlement of audit observations. Each group will consist of 2 (two) members
      [either one Audit and Accounts Officer and one auditor or one Subordinate
      Accounts Service (SAS) Superintendent and one auditor or one auditor in charge
      and two auditors]. The groups will scrutinize the replies of the auditee and will
      proceed to the respective audit units with prior approval of the programmes.
      This will be treated as bilateral meeting. The concerned Deputy Director will be
      the group leader for the groups under their jurisdiction.

     Director General and Director will strictly monitor these efforts. Fortnightly report
      of the progress of settlement of audit observations will have to be sent to the
      Director General.

     The groups so formed will also prepare list of recoverable observations
      with headings and amount recoverable.

     The progress of settlement of audit observations will be analysed in the last weak
      of September 2006 and if required the same practice will be continued in the
      second quarter of the financial year 2006-2007.

     In the first quarter of 2006-2007 no normal/vouching audit team will be formed. If
      the settlement of audit observations is satisfactory then the audit teams will be
      allowed to move in the second quarter giving 3-4 extra mandays with the audit
      mandays for settlement of audit observations of respective unit.


Our purpose is to expedite the settlement of audit observations. We are determined that
we scrutinise the replies already sent to us, further discuss the observations raised, settle
observations upon taking into considerations the actions taken according to the reality of
the situation. Ultimately we want to prepare an agreed list with the number of
observations that remain unsettled showing the amount involved and suggest that
recovery of money is required from the persons concerned and we submit the list to the
CAG, MOF, Ministry of Communication (MOC). This effort will help reduce the trivial and
incorrect observations and will also help prepare proper audit plans. Our staff will
definitely be enthusiastic towards new approaches to audit.

General Guidelines for Settlement of Audit Observations

 Take into consideration the four phases break up of year and unit/department wise
  audit observations. The phases are:
      1971-1972 to 1984-85
      1985-1986 to 1994-95
      1995-1996 to 2004-2005
      2005-2006

 Identify the number of observations and their nature and specify the observations
  which have no involvement of money

 Identify the number of observations with monetary involvement of which are not more
  then Tk.500 (five hundred) for each observation
 Specify the observations of repetitive character and ascertain that whether in the last
  audit observation (s), the figures of former observations have been included. In that
  case keeping the last one settle the former observation(s). [e .g. sundry debtor,
  advances, deposits and prepayments]

 Set aside the sub-judice case and prepare separate list (s) for those cases

 Identify the cases which are in the process of write off and prepare a separate list for
  those cases

 Scrutinize the replies to observations (ordinary, advance, draft paras included in the
  audit report (s). Settle the ordinary observations on satisfactory reply(s). Prepare
  separate list (s) for Advance Para (AP) and Draft Para (DP) and submit them to head
  office and regional offices with comments. AP and DP will be reviewed in the tripartite
  meeting (s)/audit headquarter

 Examine the subsequent regularisation of the observations (mostly in the cases of
  contract) and if satisfied, settle those observations

 Settle all observations of excess expenditure over budget provisions up to the year
  2002-2003 as those have been reflected in the Appropriation Accounts as audit
  comments (cases of defalcation shall not be dropped)

 Settle all observations relating to failure of achievements of station targets

            1.   Audit Code
            2.   Audit Manual
            3.   Government Auditing Standards
            4.   PAC reports of the 5th, 7th and 8th Parliament
            5.   CAG REVIEW published during 2003-2005

     Summary on „Auditing Peru's Cultural Heritage Assets‟
  by Luis Arriola Acuña and Ana Teresa Pantoja Urízar-Garfías, Office of the
                  Comptroller General of the Republic of Peru
[Published in the INTOSAI International Journal of Government Auditing, April

                                 Dewan Sayeedul Hasan


Peru is a country rich not only in the diversity of its natural resources, but also in the
multicultural heritage represented by its paleontological, archaeological and historical

Peru's National Institute for Culture has defined their country's cultural heritage as the
tangible and intangible assets that their ancestors have left to them over the centuries.
These assets help them forge an identity as a nation and enable them to know who they
are and where they have come from, thus allowing them to strengthen their personal and
societal development. The state has a special responsibility to protect these assets so
that they can be admired, valued, and used in a sustainable way by today's citizens and
maintained for future generations.


According to the United Nations Education, Scientific and Cultural Organisation
(UNESCO), culture and development cannot be separated, either in terms of economic
growth or as a means of access to a satisfactory intellectual, affective, moral, and
spiritual existence. Development involves the capabilities that allow groups, communities,
and nations to plan their futures in an integral and integrated way. Thus, culture can be
seen as a cross-cutting factor in economic, social, and environmental development.


The illegal trade in cultural assets is an ever present enemy of Peru's cultural heritage. It
includes the buying and selling of archaeological, artistic, or historical artifacts and
objects (most of them stolen from archaeological sites, churches, and temples in towns
such as Cuzco, Puno, and Huancayo), even though such trade is prohibited by law. The
principal offenses connected with this illicit trade in cultural objects are black-market
trading and taking goods out of the country without authorisation. As many experts have
observed, this illegal trade would not exist if there were not a market for the goods,
primarily composed of unscrupulous wealthy collectors in Peru and abroad.

In this context, the Peruvian Congress passed a law giving the Comptroller General of
the Republic of Peru the authority to carry out audits of the environment, natural
resources, and cultural heritage assets. In order to carry out these audits, the
government's cultural policy must be explained and specific tools must be developed to
enable government institutions to implement the policy at the national, regional, and local
levels in accordance with the powers granted by law. However, there is an inherent risk
that these policies will not be viable for the public institutions responsible for cultural

  A member of Bangladesh Civil Service (Audit and accounts) cadre on lien as Media and
Information Officer, International Jute Study Group, Dhaka

affairs because of the limited financial resources assigned to strengthening their
management capabilities and promoting effective action.


Cultural heritage audits evaluate the way in which the public sector manages three
operations fundamental to preserving the assets that constitute the cultural heritage:
inventory, registration, and cataloguing. These three operations are phases of a dynamic,
specialised, technical process that makes it possible to clearly identify the features,
condition, and location of a specific cultural heritage asset. This process contributes to
the knowledge of each asset's origin and history and any changes it has undergone,
helps prevent its loss, and, where necessary, helps facilitate its recovery, even on an
international level. These three operations are applicable to our archaeological, historical,
and contemporary cultural heritage.

Because of decentralisation in Peru, regional governments and local municipal
authorities have now assumed many functions relating to the preservation of cultural
heritage assets. This adds to the complexity of the audits since numerous participants
are involved.


In 2002, the SAI of Peru began to incorporate the cultural heritage variable when
planning its environmental audits, giving rise to the environmental and cultural heritage
audit. This effort was prompted by current legislation and the presence of many
archaeological sites and cultural manifestations linked to the country's cultural heritage.
The first of these audits was in the area of Lake Titicaca, the world's highest navigable
lake (situated at 3,800 meters-12,500 feet-above sea level) and the cradle of the Inca
and earlier Tiahuanaco civilisations. Several population centers and communities in the
area have preserved their century-old culture.

Based on its initial experience, the SAI of Peru determined that these audits should be
similar to management audits, linked to the three "Es"- economy, efficiency and
effectiveness-with a minimum of regularity auditing procedures, which would allow the
SAI to assess the degree of compliance with legislation.

Audits undertaken/reports issued

Five environmental audits and one cultural and heritage audit were undertaken and six
individul reports and one general report consolidating the environmental and cultural
heritage situation in the Lake Titicaca basin were issued.

Principal observations/outcomes

Principal observations/outcomes were - updating the inventory and cataloguing the
cultural heritage of the city of Puno, strengthening intersectoral coordination, explaining
the institutional environmental policy and treatment of waste water discharged directly
into the lake.

In 2003, the SAI of Peru carried out environmental and cultural heritage audits in three
environmental and cultural areas: the Chan Chan Archaeological Zone, the historic
sanctuary of Machu Picchu, and the Rio Abiseo National Park. This effort
encompassed 14 audits of government institutions.

i)     Chan Chan, the capital of the Chimu (pre-Inca) kingdom, reached its zenith in the
       15th century and was the largest city in pre-Columbian Latin America. It was also
       the largest adobe city in Latin America, and its layout reflects a political and social
       strategy marked by the city's division into nine citadels or palaces forming
       autonomous units. It meets the cultural criteria of a UNESCO World Heritage site
       and provides exceptional testimony of a vanished civilisation.

       Audits undertaken/reports issued: Five environmental audits and one cultural
       heritage audit were undertaken and six reports on six entities and one general
       report consolidating the environmental and cultural aspects of the Archaeological
       Zone were issued.

       Principal observations/outcomes: Principal observations/outcomes were -
       strengthening control and supervision of activites related to the protection and
       conservation of the archaeological zone, control and monitoring of underground
       and surface waters and the dangerous elevation of the water table for the adobe
       construction, strengthening the organisational structure and intersectoral
       coordination and implementing an institutional, environmental and cultural
       heritage policy.

ii)    The historic sanctuary of Machu Picchu is one of the two World Heritage sites in
       Peru that meets both the cultural and natural selection criteria. It is situated at an
       altitude of 2,430 meters (7,972 feet) above sea level in surroundings of
       outstanding natural beauty. In relation to the cultural criteria, this archaeological
       site was founded by the Tawantinsuyu (Incas) and is thought to have been a
       royal residence. It is considered a masterpiece of human creative genius and the
       most splendid urban creation of the Tawantinsuyu. As a natural asset, it is an
       outstanding example of the evolution and development of terrestrial, freshwater,
       coastal, and marine ecosystems and their animal and plant communities.

       Audits undertaken/reports issued: Five environmental audits and one cultural
       heritage audit were undertaken and six reports on six entities and one general
       report consolidating the environmental and cultural aspects of the sanctuary were

       Principal observations/outcomes : Principal observations/outcomes were -
       drawing up the master management plan for the site, incorporating geological
       and drainage aspects, formulating the intervention plan for critical areas, drawing
       up a legal and technical report on recovering archaeologial goods, updating the
       master plan for the historic sanctuary of Machu Picchu, completing the legal and
       physical repair of Machu Picchu, drawing up the public use plan for tourism and
       implementing measures to avoid the introduction of non-native species.

iii)   The Río Abiseo National Park is the second location UNESCO declared a
       World Heritage site on natural and cultural grounds. The park is designed to
       protect a representative sample of the cloud forests and high rainforests conserve
       the cultural resources - in particular, the Gran Pajatén and Los Pinchudos
       archaeological complex - and preserve its scenic beauty and the species of flora
       and fauna in their natural state.

       Audits undertaken/reports issued: One envirnmental audit and one cultural
       heritage audit were undertaken and two reports on two entities and one general
       report consolidating the environmental and cultural issues affecting the park were

       Principal observations/outcomes: Principal observations/outcomes were -
       drawing up an integral plan to identify factors causing deterioration and work to

       be undertaken on research, preservation, conservation, valuation, and
       dissemination of the cultural and archaeological heritage and formulation,
       approval, and development of strategic alliances.


The SAI of Peru has been developing systematic guidance to implement cultural heritage
management audits. As demonstrated in the reports, the audits have made it possible to
implement recommendations improving the management of those government
institutions charged with overseeing the nation's environmental and cultural heritage
work. These audits are being replicated in urban and rural areas where cultural assets
are being removed and plundered and also in areas that are critical because of potential
environmental pollution. All these efforts are designed to defend and protect biodiversity
and the nation's cultural heritage while promoting the general welfare of the population
through economic, social, environmental, and cultural development. In the end, this will
also advance the necessary sustainable development of the country.

       Summary on „100 Years Development of National Audit
                     Institution of Malaysia‟
                                   M. Mahbubul Hoque


Government Audit Department is responsible for strengthening the accountability of the
Government Financial Management. Malaysia has celebrated 100 years of National Audit
Institution and has moved into a new century. It was the time when they were able to
move out from the outdated work culture and adopt new approaches which were more
effective. Various changes have been implemented by the department over the past 100
years towards the enhancement of audit efficiency, effectiveness and quality. The slogan
was "quality audit enhances accountability". National Audit Department successfully
advanced in line with the development of the public service, upgraded the quality in
auditing and improved the financial management of the government.


The objective of publishing the book ―The 100 years of The National Audit Institution‖ is
to recap the history and the important events as well as the achievements of the National
Audit Institution since its inception. During this long period National Audit Institution had
to come across many memories, challenges and changes. This book conveys messages
to the new generation which is successfully carrying out the mission, vision and the
objectives of this Institution.

Responsibility of National Audit Department

The National Audit Institution acts as a watchdog or observer to ensure that the
responsibility entrusted upon them is carried out in compliance with the rules and
regulations. Auditing, the core business of the national Audit Department, involves
certification of the financial statements, ensuring financial management complied with the
rules and regulations and evaluation of the efficiency and effectiveness on the
implementation of programmes and activities by the Government. According to Audit Act
1957, Auditor General is empowered to obtain explanations and information from any
public office and examine any document he deems fit. However, as Head of the
Department, he is also required to keep all government secrets. A high degree of
professionalism and skill is expected from all audit officers to ensure that the report is
prepared timely and of high quality. To ensure accountability in financial management of
the government, the National Audit Department has set its Vision, Mission, Objectives
and Client Charter as follows


To be recognised as a prime contributor for promoting excellence in financial
management and accountability in the public sector.
To audit in a professional and independent manner and to provide a balanced report to
the Parliament and the State Legislatures for the improvement of accountability in public

    Director, Local and Revenue Audit Directorate


  To prepare quality audit reports and ensure timely submission to the Parliament
   and State Legislatures
  To carry out audit activities independently and produce balanced reports
  To fulfill the needs and aspiration of stakeholders and auditees
  To manage audit activities in the most efficient and effective manner
  To be a role model to other organisations

Client's Charter

  To perform audit professionally in conformity with the international standards of
  To certify financial statements, issue audit certificates and audit reports within the
   stipulated time
  To prepare balanced audit reports without prejudice or bias

Historical Background

The National Audit Institution was established in early 20th century during British
Colonisation era. It was set up separately in four Federated Malay states namely,
Selangar, Perak, Negeri Sembilan and Pahang as well as in three straits settlements that
is Malacca, Penang and Singapore. In each state , the institution was known as the Audit
Office and was headed by a State Auditor The headquarters of the audit offices were
situated in Kuala Lumpur and was headed by a Chief Auditor. It was a historic date when
the post of the Auditor General of the Federated Malay States was created for the first
time to replace the Chief Auditor. The former British Resident's Secretary Mr. W.J.P.
Hume was appointed to the post. From 1906 to 1931, the audit institution had been
undergoing various changes in audit scope in line with the current needs. During the
Second World War between 1941 to 1946 the institution was taken over by the
Japanese. When the Federation of Malaya achieved its independence in 1957, the post
of the Auditor General started to be known as the Chief Auditor. Since then the role and
function of the National Audit Institution has become more important. Although the
Federation of Malaysia achieved independence from the British in 1957, the post of
Auditor General was first held by a Malaysian in 1963. Prior to 1963, this post used to be
selected from the British officials of the British Colonial Audit Service.

Audit Scope

Before independence, the main focus of auditing was to certify the annual financial
statements of the Government and its agencies. For that the auditors had to check
financial activities involving payments, receipts, assets and stores for the year. In the
audit process, one important element was surprise inspections or spot audits on the
accounts maintained by the auditees.

Audit Report

As the country was under British rule from 1906 to 1959, audit used to be conducted and
the reports thereof prepared by the Auditor General in English. From 1960 the audit
reports were written in both Malay and English. In 1934, the structure of the audit report
was amended and divided into two parts. Part 1 related to the certification of accounts
and part 2 related to the results of audit on the handling of the accounts and record
keeping. In the early 1956, the format of audit report was improved and divided into eight
parts. Apart form the certification of financial statements, this report also addressed
issues regarding the delay in submission of the statements, internal control,
embezzlements, losses and also reported on the financial management in departments
and ministries.

The use of Green ink

The use of green tick by either a pencil or a green-inked pen is very synonymous with the
work of an auditor. This is to certify that a record has been checked. The usage has been
practised for a long time and it cannot be ascertained the exact date when it started. It is
believed that this practice was inherited form the British. In the early 50's this green tick
was also used by other government departments to certify a record. To avoid confusion
between an auditor's tick and a tick by other government departments, an Office Order
No. 6 Year 1952 was issued by the Malayan Director of Audit at that time to request all
other Federal or State Departments to cease certifying their records with green ticks.

The Post-Independent Era

After achieving independence in 1957 The National Audit Institution changed from being
known as the Audit Department to the National Audit Department and the name of the
post of the Auditor General of the Federation of Malaya was changed to the Auditor
General of the Federated Malay States. A law known as the Audit Act 1957 was enacted
to give the mandate for the execution of the audit process. When Malaysia was formed
on September 16, 1963, the organisational structure of the National Audit Department
was extended with the inclusion of Audit Office of Singapore, Sabah, and Sarawak. In
1965, Singapore Audit Office was separated from Malaysia.

Audit Scope

After independence the Government first introduced the programme of performance
budgeting system in 1968. The budget estimates were prepared in accordance with the
performance of activities and programmes of the government and auditing approach
expanded the evaluation of the performance of government programmes and activities.
This represented an important milestone in the history of public sector auditing as this
new approach led to the Audit Act, 1957 being amended in 1978. Through these audits,
an evaluation needs to be done to determine whether public funds are being used for the
stipulated purpose and the related activities have been implemented in an efficient,
economic and effective manner. Performance audit gave a positive impact on the image
of the National Audit Department. Media, politician and general public gave serious
attention to the Auditor General's Report because it highlighted the weakness of the
government agencies in the implementation of their activities and programmes. Therefore
the audit approach began to assume greater significance in performance audits and the
coverage in the audit report for financial statement audits and performance audits was
more balanced. Beginning with 6 performance audits that were conducted in 1978, it
increased to 109 audits by 2003.

Staff Training

National Audit Department did not have a specific training unit to train its officer before
1960. In 1967, the Training and System Unit was set up in order to give basic training to
new officers. Audit officers were also sent for management courses that were conducted
by other government agencies and private sectors. Besides that, audit officers were also
sent abroad to attend seminars, meetings, and conferences which were organised by
overseas Audit Institutions. In the early 1960's the major development in the public sector
was the change in the processing of accounting transactions form manual to electronic.
Therefore, the Electronic Data Processing Audit courses gained importance and
continued to develop. In 1980, computer software programmes for sampling of financial
transactions were developed by the office of the National Audit Department. With this
software, audits on payment vouchers were done through sampling and no longer the
universe. This method not only saved time, but also ensured more accurate findings.

Assistance from foreign countries on computer audits was also obtained in the early
1980's. A Canadian consultant was brought under the sponsorship of the United Nations

Development Programme (UNDP) project in order to assist in the auditing of the public
accounts. A walkthrough system was introduced in this regard during the interim audit of
the public accounts. Through this system, the public accounts audit was done based on
flow charts and the controls were identified, tested, and updated. In the late 1980's the
National Audit Department was given an insight into Computer Assisted Audit
Techniques and Tools (CAATTs). Audit Command Language (ACL) was used widely by
the audit staff. The software was found to be very useful as the accounting data could be
analysed completely and statistical reports could be produced. Currently, the ACL
software serves as a basic tool for audit officers in carrying out audit of the financial

The country's development in the Information and Communications Technology (ICT)
became more advanced in the early 90's. E-Government was launched under the
Multimedia Super Corridor Project. The operation of the government administration
began to move towards electronic systems. In order to face this development, the
National Audit Department equips its staff with updated knowledge and computer
equipment and has implemented an aggressive strategy of computerization involving the
provision of hardware, software as well as computer networking with all branches of the
Audit Office. Under the Eighth Malaysian Plan, a sum of RM 30 million was allocated to
finance this project.

From 2000 till now

The National Audit Department started efforts towards restructuring its organisation to
cope with the increasing auditing needs. Consequently, a full-fledged restructuring was
done in 2002, where a total of 255 new posts were created and grades of 10 existing
posts were upgraded. Two new sectors namely the Corporate Management Sector and
the Federal Statutory Bodies Audit Sector came into being. Besides, an Information and
Communications Technology Division was also set up to provide support service to
enable ICT auditing to be carried out more effectively.

National Audit Department is aware of the ever-changing and ever-challenging
environment of the public sector. Therefore it has introduced reforms programme for
public sector auditing which includes balanced audit reports, functioning as advisors to
auditees, separate audit reports for statutory bodies and audit of accounts of
government-owned companies. Since 2000, the Auditor General's audit report has not
only been disclosing weaknesses of the ministries and government agencies, but also
reporting on positive actions and improvements undertaken by them. This approach
eliminates the perception that auditors are only fault-finder. Moreover audit department
has changed its role to work as advisors to the auditees. Through this approach, auditors
and auditees cooperate with each other and discuss on remedies to overcome the
weaknesses in financial management especially pertaining to issues that have been
raised repeatedly each year. In 2003, National Audit Department also launched a 'foster'
programme to help the auditees to increase the standard of financial management. This
service is provided to selected offices for one year period. Responses received from the
auditees are very encouraging and they appreciate the role of audit department in
strengthening the financial management of the government.

Audit Guides

Now-a-days auditing function has become more complex and challenging. To ensure
effective audit , advanced knowledge and skill is a must. To face the challenges, the
National Audit Department had prepared various auditing guidelines such as the
Performance Audit Manual, Financial Management Auditing Guidelines, ICT Audit
Manual, The Islamic Religious Council Best Practices, Guidelines on Audit of Project
Management and many others.

Strategic Planning

To face the challenges and issues of the coming days the department has laid down the
following strategic plan:

       Target 1: Enhancing quality in audit works
       Target 2: Providing and enhancing advisory roles
       Target 3: Enhancing ICT competency
       Target 4: Enhancing quality in human resource management
       Target 5: Strengthening work culture
       Target 6: Enhancing quality in the financial management of the department
       Target 7: Enhancing delivery system
       Target 8: Establishing a conducive working environment


On December 16, 2005, Malaysia celebrated its 100 years of the National Audit
Institution. They had overcome many challenges successfully and established their
image as effective and very important agency in determining public accountability. With
the dedication, sincerity and professionalism of the audit officers, National Audit
Institution has made great contribution to improve the overall financial management of
the government.

     Summary on National Audit Office (NAO), UK report on „The
    Financial Auditing and Reporting - Report of the Comptroller
            and Auditor General for the Year 2004–2005‟
                                     Md. Azizul Hoque

‗The Financial Auditing and Reporting of 2004-2005‘ - a general report of the Comptroller
and Auditor General of UK which was submitted to the parliament. The report
summarised the results of financial audit work undertaken by the National Audit Office
(NAO), UK over the twelve months from February 1, 2005 to January 31, 2006 and
highlighted the key issues arising from that work.

The report comprises three parts and appendices. Part-1 narrated Financial Audit, Part-2
dealt with Corporate Governance and Part-3 related to Auditing Value.

Part 1 – Financial Audit

The Comptroller and Auditor General is the appointed auditor of all government
departments, executive agencies and a wide range of other public bodies. The NAO
undertakes, under the direction of C&AG, the detailed financial audit work necessary to
support his duties and statutory responsibilities. The C&AG audit approximately 500
accounts per year, incorporating total expenditure and revenue of approximately £ 800

All financial audits for the year 2004-2005 accounts were conducted in accordance with
UK Auditing Standards issued by the Auditing Practice Board. The C&AG also expressed
his opinion as to whether the transactions contained within the financial statement are
regular in that they have been undertaken in accordance with relevant legislation, other
regulations issued by ministries and parliamentary and treasury authority.

The report focuses on the C&AG's audit of the receipts of revenue and of public debt and
reserves, as well as commenting upon progress made by audited bodies in developing
systems to enable faster financial reporting and the future compilation of government
Quality and Timeliness of Accounts
During 2004-2005 the departments generally continued to make good progress in
response to the challenges of resource accounting and for the most part,. the quality of
accounts submitted to the C&AG for audit continued the pattern of improvement noted
in recent years
       Qualified opinions were issued on only two sets of department resource accounts
        (out of 55 accounts), compared to four accounts in the prior year and 11 qualified
        opinion issued out of 473 accounts of other executive agencies audited by the

         Majority of the departments and other public bodies are producing unqualified
          accounts (unqualified opinion 515 out of 528 accounts)

       Due to fundamental problems the C&AG had to issue a            disclaimer opinion
        (Home Office)

       In general, departments continue to make good progress in improving the
        timeliness of accounts submission. Over 85% of departmental resource accounts

    Additional Deputy Comptroller and Auditor General (Personnel)

       had been submitted timely i.e before November 30, 2005. However, all accounts
       were laid before the House of Commons by the deadline of January 31, 2005.

The Audit of Receipts of Revenue & Public Debt and Reserves

Audit of Receipts of Revenue

    The Comptroller and Auditor General's audit of receipts of revenue was with the
     exception of reservations over tax credits, satisfactory and provided overall
     assurance that adequate regulations and procedures had been framed by the
     Inland Revenue, HM Customs and Excise and the Driver and Vehicle Licensing
     Agency (DVLA) to secure and effective check over the assessment, collection
     and allocation.
    In 2004-2005, the Inland Revenue collected some £ 257 billion and HM Customs
     and Exercise collected net revenue of some £ 121 billion. The Inland Revenue
     paid out £ 15.8 billion in tax credits. DVLA collected net revenue of £ 4.7 billion
     from vehicle exercise duty. Overall, this represents approximately 90% of central
     government revenue for the year.
    The C&AG continued to note reservations concerning tax credit errors and this
     led to a further qualification of his audit opinion on the Inland Revenue's Trust
     Statement account for 2004-2005. The department produced interim findings in
     July 2005 which indicated that it had overpaid £ 460 million (around 3.4% by
     value) because of claimant error and fraud in 2003-2004. The C&AG concluded
     that these levels of error were unacceptably high and qualified his audit opinion
     on the Inland Revenue Trust Statement account.
    Accounts produced by the Inland Revenue and HM Customs and Excise were on
     an accrual basis for the first time in 2004-2005. The C&AG concluded that there
     were some uncertainty relating to the forecast of certain elements of tax accruals
     for Income Tax Self Assessment and Corporation taxpayer returns but there was
     adequate disclosure. So that his opinion was unqualified in this respect.
    The Large Business Office (LBO) handle the tax affairs of some 800 large entities
     and employers which generated some £ 18.4 billion of tax in 2004-05. The C&AG
     noted that the complexity and sophistications of tax management in large
     business sector, pose some of the most difficult and potentially costly challenges
     for the department, both in terms of administration cost and loss of revenue.

Audit of Public Debt and Reserves
    The C&AG's audit of debt and reserves involves the examination of a number of
     areas including central government receipts, payments and borrowing via the
     Consolidated Fund, National Loans Fund, debt and cash management through
     the Debt Management Accounts.
    In 2004-2005 accounts show that total receipts and payments into and out of the
     Consolidated Fund were over £ 352 billion, including gross receipts of £ 159
     billion and £ 121 billion from the Inland Revenue and Customs and Excise
     respectively. Payment for supply services came to £ 326 billion while the total for
     standing services was £ 26 billion.
    The Consolidated Fund and National Loans Fund are closely linked. The
     Consolidated Fund is balanced on a daily basis via a payment from, or transfer to
     the National Loans Fund. The 2004-2005 accounts for the National Loans Fund
     show that the government's net liabilities through National Loans Fund borrowing
     were £ 455 billion, compared to £ 413 billion at the end of previous financial year.
     In total the Fund's liabilities were £ 531 billion and Fund's assets were £ 76

    The Debt Management Office is to support the governments debt management
     objective to minimise the long term cost of meeting the government financing
     needs, risk and ensuring that debt management policy is consistent with the
     objectives of monetary policy. The Debt Management Office is also responsible
     for managing the government's daily cash requirement in a cost effective manner.
     The C&AG's audit of public debt and reserves account was conducted

Whole Government Accounts
    The government's decision is to proceed with the publication of Whole
     Government Accounts (WGA) and good progress continues to be made in this
     significant project.
    WGA will be commercial style group accounts for the whole of the public sector,
     prepared by the Treasury and audited by the C&AG. The main aim of the
     Treasury's WGA Programme is the provision of better quality financial information
     on the government as a whole, underpinning the decision of government fiscal
     planners, helping with policy formulation and resource allocation and improving
     the accountability of government to the parliament and the wider public.
    The need for further improvement in both timeliness and data quality still remains
     however, and the National Audit Office continues to work closely with Treasury to
     address these issues. The NAO is currently establishing working protocols to deal
     with the added logistical challenges of adding a thousand new bodies to the
     consolidation process, while at the same time helping to address a number of
     technical challenges such as the need to converge different accounting policies.
    WGA will make available for the first time comprehensive, audited public sector
     information based upon Generally Accepted Accounting Principles (GAAP). The
     NAO will continue its commitment to working with Treasury and other bodies
     across the public sector.

Part 2 – Corporate Governance
In recent years, both the public and private sectors have seen the development of
systematic 'risk management' arrangements as a basis for ensuring the effective delivery
of organisation's objectives. Properly planned and managed risk taking by government
departments can promote innovation and lead to improved value for money for tax
payers. The NAO continues to work closely with audited bodies and their Audit and Risk
Committees in assisting the development of corporate governance arrangements and,
more broadly risk management procedures.
The C&AG's report in recent years on risk management have stressed the importance for
departments of embedding risk management within their day to day general management

A well functioning audit committee is key to achieving good corporate governance and
ensuring that risk management processes receive the attention that they deserve. It is an
important part of the role of the NAO's senior line financial audit staff to support their
client's audit committees, and the office has been developing a range of guidance and
tools to assist public sector audit committees. This includes a self assessment toolkit for
audit committees to allow them to assess their performance against best practices.

The C&AG and his staff continue to influence the development of risk management,
through participation in such bodies as the Public Audit Forum, the Auditing Practices
Board and the International Organisation of Supreme Audit Institutions. In addition, NAO
staff have attended various events to aid clients and audit committees in developing
corporate governance.

The development of corporate governance in the central government sector continues. In
July 2005 the Treasury introduced a governance code for central government along the
lines of the combined code applicable to listed companies in the private sector. And it is
currently revising its Audit Committee Handbook for central government bodies. The
NAO intends to continue to play its full part in ensuring the success of these and other

Part 3 – Adding Value

The range of financial audit work undertaken by the NAO continues to evolve and this
part of the report describes the additional audit services provided by the National Audit
Office. The recent developments in this area reflect the commitment on behalf of the
C&AG to further contribute to the improvement of financial management and effective
financial control across the UK central government sector.

The overall results of the C&AG's financial audit work indicated that, general standards
remain high. However, the C&AG was able to contribute to improvements in the effective
financial management and financial control within the bodies which the NAO audits. This
contribution was made in a number of ways; most directly, by the provision of a
management letter at the end of the audit process or as a result of the recommendations
arising from good governance projects.

The C&AG has always been highly supportive of the need to improve efficiency within the
central government. The NAO staff fully support the steps being taken to professionalise
the finance function in departments and have assisted the Treasury in a department by
the department review of the effectiveness of financial management within central
government. There are now a number of pieces of work underway or planned by senior
NAO staff responsible for the financial audits of departments to assist in carrying forward
the active plans arising from the reviews.

The C&AG and his staff continue to contribute towards the shaping of accounting and
auditing best practices through active participation on a number of professional bodies.
The C&AG is the Chairman of the Professional Oversight Board for Accountancy.
Moreover, the NAO staffs are represented on committees and working groups of bodies
such as the Accounting Standards Board, the Institute of Chartered Accountants in
England and Wales, the Treasury, the Public Audit Forum, the Chartered Institute of
Public Finance and Accountancy and the International Auditing and Assurance Standard
Board. In addition to this, staffs continue to contribute to the debate on issues which are
key to the central government sector, most notably the accounting treatment of Private
Finance Initiative projects.

The NAO supported the agenda of the UK presidency of the European Union and helped
to develop the roadmap (roadmap is deigned to move European Union towards a clear
audit certificate known as a positive Statement of Assurance)

The NAO has an active programme of recommendations to client organisation. This is an
important initiative taken by the NAO to contribute to the quality of Financial Management
of the host organisation.

      A brief on the “ITEC Training Programme on Government
                Accounts and Financial Management”
                                      Md. Manirul Islam
1.        Introduction
Public Sector Financial Management has become crucial in the present era of
globalisation and liberalisation. The state is enhancing public-private partnership
simultaneously by making itself more adept not only in concentrating on its core values
but also properly managing its finance. In the new era, the state has to permit the
economy to be more productive as well as to rationalise the expenditure of public
exchequer. In this context the Indian Technical and Economic Cooperation (ITEC)
Training Programme on ‗Government Accounts and Financial Management‘ is one of the
courses conducted by the Institute of Government Accounts and Finance (INGAF), New
Delhi, India. The Institute provides an appropriate blend of concepts, tools and
techniques to financial managers in the public arena.

The duration of the training programme was 6-17 March 2006. There were 30
participants from the 16 countries namely Armenia, Bangladesh, Bhutan, Fiji, Ghana,
Guyana, Jamaica, Lesotho, Namibia, Nigeria, Palestine, Sri Lanka, South Africa, Trinidad
& Tobago, Turkey and Zambia. The programme was inaugurated by Mr. V.N. Kaila,
Principal Chief Controller of Accounts. Mr. Lal Dingliana, Joint Secretary, MEA was also
present in the opening session.

2.        Topics covered by the training programme
The topics covered by the training course are given below
    Government Accounts - organisation structure, classification system, preparation
       and consolidation
    Budget - coverage, system and classification
    Payments from government accounts and accounting thereof
    Parliamentary financial control
    Management of resources
    Cash management in government
    Visit to Central Pension Accounting Organisation
    Internal audit and internal controls
    Macro economic impact of the budget
    Financial reforms in India
    Outcome budget group work
    Accrual accounting concepts and country experiences
    Procurement of goods and services
    Communication strategy for managers
    Online collection of direct taxes

3. Tour to different historical places
The Institute arranged tours to Agra, site of the famous Taj Mahal, Agra Fort; Kutub
Minar; Red Fort; Raj Ghat; India Gate; Parliament Building and some other important
places. In addition to this my personal visit and offering prayer in the holy mazars of
Hazrat Nizamuddin (Ra), Hazrat Ameer Khasru (Ra) and Hazrat Kutubuddin Bakhtiar
Kaki (Ra) engrossed me with divinity to great extent.

4. Lessons Learned
The present Accounting and Financial Management Systems in India are almost similar
to those of Bangladesh. India has already taken some good initiatives like outcome

    Director, Defence Audit Directorate

budgeting system, online tax collection, online fund transfer etc to adapt its
accounting and financial management with the realistically changed circumstances.
Some important aspects of the training programme are-
     India has a Controller General of Accounts (CGA) for civil, Controller General of
      Defence Accounts (CGDA) for defence, Financial Commissioner for Railways,
      Director General for the postal department, Director General for the department
      of telecommunication and Accountants General for State Governments. They
      have an Integrated Financial Adviser for each Ministry
     Budget is classified into two parts: these are non-plan and plan budget, almost
      similar to our revenue and development budget respectively. Budget and
      expenditure figures in India are published in the website
     India has a 15 digit coding system and six tiers of classification. Monthly
      expenditure plan must be submitted with the detail budget of the department and
     Parliamentary control over public finance in the control point in public financial
      administration and public accountability system
     Parliament sets goals of public financial management and watches performance
      of government in this area. In addition CGA has its own internal audit mechanism.
     India has introduced accrual accounting system in two ministries on pilot basis
     Major planks of budget reforms are: Institutional reforms through FRBM Act-2003,
      Performance/Outcome Budget and Increased oversight by civil society (Right to
      Information Act)
     Three major objectives of the FRBM Act are
       To ensure inter generational equity in fiscal management
       To ensure long term macro economic stability
       To remove fiscal impediments to the effective conduct of monetary policy
     The outcome budget is conceptually part of a broader framework of the
      government‘s commitment to promote good governance. In this system there are
      some predetermined objectives against each expenditure which needs to be
      evaluated before carrying out performance audit by the Auditor General office.
      „Outcome budget‟ would be a powerful institutional mechanism to focus
      attention on attaining the ultimate intentions behind making expenditure
      provisions in the budget.
     India has revised the General Financial Rules in 2005. They have followed seven
      ‗W‘s covering the entire range of purchase management. The seven ‗W‘ stands
      for ‗why to purchase‘, ‗what to purchase‘, ‗when to purchase‘, ‗what terms &
      conditions to adopt‘, ‗ who are the prospective suppliers‘, what is the reasonable
      price‘, what are the key areas‘.
     India has On Line Tax Accounting System (OLTAS) which was implemented in
     Features of OLTAS
       Single Copy Chalan
       Fully computerised and networked branches
       Accuracy and timeliness of information flow

5      Final Remarks
A better accounting framework is the key instrument for good governance. Good
regulatory framework, accounting systems and procedures are very important to the
accountability framework, which will improve the good governance in the public sector
financial management. In view of Indian recent development in accounting and financial
management, an in-depth and down-to-earth research and analysis may be made to
explore the possibility of introducing the accrual accounting system, outcome budgeting
system and on line tax accounting system in our country.

          Summary Report on "Japan Bank for International
               Cooperation (JBIC) in Bangladesh"
                               Md. Khurshid Alam Patwary
Japan Bank for International Cooperation (JBIC) is a policy based financing institution
responsible for conducting Japan's external economic policy and economic cooperation.
JBIC operations consist of International Financial Operations (IFOs) and Overseas
Economic Cooperation Operations (OECOs).

IFOs provide financing to promote Japanese exports, imports and economic activities
overseas as well as the stability of international financial order. OECOs provide financing
to develop economic and social infrastructure in the developing countries and to help
stabilise their economy. These operations are financially independent and undertaken on
separate accounts.
       International Financial Operations - In IFOs, JBIC provides loans and other
        financing by using financial instructions such as export loans, import loans,
        overseas investment loans, untied loans, and guarantees.
       Overseas Economic Cooperation Operations - In OECOs, JBIC provides
        concessional lending (including ODA loans), which constitutes part of Japanese
        Official Development Assistance (ODA), and conducts development related

JBIC ODA Operations in Bangladesh
As a development partner JBIC has been assisting Bangladesh in its efforts for economic
and social development for the past 31 years through providing long-term, low-interest
concessionary loans, Since 1974, JBIC extended 70 ODA loans to a wide variety of
projects in sectors like transportation, power and gas, social sectors including rural
development, mining and manufacturing, telecommunications, broadcasting and so on.
One outstanding example of Japanese cooperation is the Jamuna Multi-Purpose Bridge.

Implementation of these projects played a significant role in attaining accelerated
economic growth for poverty reduction and socio-economic development of the country.

The Japan Bank for International Cooperation has statutory mandate to undertake
lending and other financial operations for the promotion of Japanese exports, imports and
economic activities overseas. Apart from that, JBIC works for the stability of international
financial order, and for economic and social development as well as economic stability in
developing economies, thereby contributing to the sound development of the Japanese
economy as well as international economy. JBIC operates under the principle that it shall
not compete with financial Institutions in the private sector.

       International Financial Operations (IFOs)
         Supporting international activities of Japanese businesses and ensuring the
         stability of the International Financial Order
         International Financial Operations (IFOs) seek to achieve the following policy
         goals: promoting Japanese plant and other exports; securing access to strategic
         materials, including energy and other resources; supporting the development of

    Area Finance Controller (Army), Savar Cantonment, Savar, Dhaka

     international operations of Japanese industries and building the basic
     infrastructure overseas; and ensuring the stability of international financial order.

     JBIC employs a variety of financing instruments in IFOs such as (1) Export
     Loans, (2) Import Loans, (3) Overseas Investment Loans, (4) Untied Loans, (5)
     Guarantees, (6) Bridge Loans, and (7) Equity Participation.
   Overseas Economic Cooperation Operations (OECOs)
     Supporting nation building in developing countries
     JBIC provides financial assistance, primarily in the form of loans, to developing
     countries under Overseas Economic Cooperation Operations (OECOs), which
     constitute part of Japanese Official Development Assistance (ODA). The primary
     operation in the provision of concessionary financing developing countries is to
     support them in their self-help efforts to develop economic and social
     infrastructure and to stabilize their economies.

     OECOs consist of ODA loans, which are extended in many forms to meet various
     development needs, and other supporting services, such as research activities. In
     particular, ODA loans are an indispensable financing instrument for developing
     countries to build their economic and social infrastructures, which are required for
     economic development.

     Recent trends in OECOs are marked by increase in financing demand for poverty
     reduction and social development, needs to address global issues, including
     global environmental conservation. These are reflections of increasingly diverse
     development needs in individual countries, demanding more differentiated and
     specialised development assistance.

   Terms and conditions of JBIC ODA Loan
     Concessional conditions: As a general rule, ODA loans are provided at a low
     interest rate.
     Procurement conditions are suitable for developing countries. Under an ODA
     loan, the principal procurement condition is "general untied", under which
     procurement can be made from any country in the world. International
     competitive bidding (ICB) is carried out in order to purchase high quality but
     inexpensive goods and services form the world.
     Majority goes to Asia: ODA loans are provided to developing countries, in which
     Asia accounts for majority of its share, followed by Africa, Latin America and the
     Middle East.
     Diversifying target sectors: ODA loans are targeted mainly to socio-economic
     infrastructure such as power, gas, transportation, telecommunications and
   The Project Cycle And ODA Loan Procedures
     ODA loans usually follow a sequence of standard procedures. They are: project
     identification, preparation, appraisal, ex-ante evaluation, prior notification,
     exchange of notes, loan negotiation, loan agreement, project implementation and
     supervision, ex-post evaluation and monitoring after project completion.

     Project Preparation - A developing country draws up medium and long-term
     development plans and carries out project identification with due consideration for
     targets and strategies in these plans. JBIC conducts macroeconomic and sector

       surveys and examines the urgency and priority of the identified projects through
       policy dialogue with the governments of developing countries.
       Loan Request - The government of developing countries file a loan application to
       the Japanese Government, accompanied by documents produced in the project
       identification and preparation stages.
       Examination/ Appraisal and Ex-ante Project Evaluation - JBIC examines the loan
       application documents submitted by the governments of developing countries. At
       this point, the Japanese Government may send a mission, if necessary, to
       consult with the country that requests for the loan. Subsequently, JBIC sends an
       appraisal mission to the requesting country for discussions with officials involved
       in the project and for field visits. The mission studies economic, social, technical
       and environmental aspects of the project in detail.
       Exchange of Notes and Loan Agreement - Based on the results of the appraisal
       conducted by JBIC, the Japanese government makes a decision over loan
       provision as well as its account, terms and conditions. Based on the decision of
       the Cabinet, the Japanese Government signs a diplomatic document, the
       Exchange of Notes (E/N), with the recipient government. Thereafter, JBIC and
       the borrower sign a Loan Agreement (L/A).

       Implementation - After the signing of the L/A, the project enters the
       implementation stage. Essential inputs to the project such as materials,
       equipment and civil works will normally be procured through international
       competitive bidding, as it is the most economical and efficient method. The
       borrowing country is responsible for carrying out the project, while JBIC offers
       advice as necessary for smooth project implementation.
       Project Completion, Ex-Post Evaluation and Follow-Up Monitoring - JBIC
       conducts ex-post evaluation for completed projects in order to draw lessons for
       future projects. Ex-post evaluation assesses the project implementation, post-
       completion operation and maintenance of project facilities and development with
       the initial plan. In addition to individual projects, evaluation takes place at the
       programme level, making a comprehensive assessment with respect to the
       economic and social impact of the project portfolio on a given region or sector.

       Furthermore, JBIC may, upon request from the borrowing country, conduct a
       study under the Special Assistance for Project Sustainability (SAPS) in order to
       sustain and improve the effects of completed projects.

In April, 1, 2005 JBIC announced its new "Medium-Term Strategy for Overseas
Economic Cooperation Operations" for a period of three years from April 1, 2005 through
March 31, 2008.

Bangladesh has made some economic growth in recent years but still holds a massive
population of the poor. Poverty reduction is therefore its prime task. With the objective of
attainment of the Millennium Development Goals (MDGs) in mind, our efforts will be
focused on assistance for improvement of core economic infrastructure to raise income
levels and promote economic growth, and also for agricultural and rural development as
more direct ways to reduce poverty.


    General Information
       In March 1974, JBIC started its operation in Bangladesh through providing a
       commodity loan. Since then, JBIC has been providing loan assistance to

   Bangladesh in sectors such as Transport, Power, Telecommunications, Rural
   Development etc.

   As of the end of Japanese FY 2004, JBIC extended 70 ODA loans to
   Bangladesh. The loan assistance with a cumulative total of ¥ 568 billion,
   comprised of Commodity loans (46%), followed by Mining and Agriculture (16%),
   Power and Gas (14%) and Transportation (13%).

 Improvement of Economic Infrastructure
   Infrastructure development is an indispensable condition for economic growth
   and sustained poverty reduction in Bangladesh.

   Bangladesh, however, lags behind in developing basic infrastructure necessary to
   ensure sustained economic growth for poverty reduction and social development.
   JBIC wishes to be a partner in the efforts of the government of Bangladesh to
   remove infrastructure bottleneck prevailing in this country.

   JBIC intends to assist in developing the transportation network and public utilities,
   including electricity, water supply and telecommunications.

   Bangladesh is a flat terrain with numerous rivers and water bodies. These rivers
   and water bodies hinder the smooth and efficient operation of road
   communication network throughout the country. In order to promote integration of
   domestic markets and expansion of distribution system, improvement of
   infrastructures such as roads, bridges, ports, inland waterways, and airports is an
   immediate necessity.

   In this context, JBIC has provided ODA loans for construction of Jamuna Multi-
   Purpose Bridge, Lalon Shah Bridge (Paksey Bridge), recently opened Khan
   Jahan Ali Bridge (Rupsa Bridge) to help create ferry free road network in the

   Under the same sector, JBIC has also expanded loan assistance for the
   development of Chittagong Shah Ananat International Airport.

   Bangladesh faces problems of serious power shortages, high system losses, and
   low electrifications rates. The current state of the power sector is not conducive to
   accelerated economic growth, poverty reduction and social development. Only
   one-third of the population has access to electricity. In order to improve this
   situation, JBIC has so far extended 15 ODA loans for power generation,
   transmission and distribution to the tune of ¥80 billion. To name, some of these
   power projects are Kaptai Hydro Power Plant, Sylhet Combined Cycle Power
   Plant, Barge Mounted Power Plant, System Loss Reduction Pilot Scheme etc.

   During the last 10 years Japan has provided ODA loans of over ¥10 billion for
   rural electrification. This loan is being utilized for consumer connections including
   irrigation, labour intensive small-medium industries in 8 districts in Bangladesh
   with a target to provide 350,000 connections.

   Agricultural and Rural Development
   The government of Bangladesh has identified agriculture and rural development
   as the topmost priority sector for rapid poverty reduction. With about 25% of GDP
   contributed by agriculture and another 36% by the rural non-farm sector, the rural
   economy as a whole contributes more than 60 percent of total GDP.

       To increase better supply of urea fertilizer in the country, JBIC has extended loan
       assistance to the extent of ¥73,420 million for Ghorasal Urea Fertilizer,
       Chittagong Urea Fertilizer and Jumuna Fertilizer Factory under Bangladesh
       Chemical Industries Corporation (BCIC). Increased production of urea fertilizer
       helped to promote increased agricultural production in the country.

       JBIC financed Greater Faridpur Rural Infrastructure Development Project (RDP-
       24) aimed at developing the rural infrastructure, including rural roads, village
       markets (Growth Centre) and rural administrative facilities (Union Parishad
       Complex), in Greater Faridpur (consisting of five districts), where the proportion of
       impoverished people is higher than the national average.

       In FY 2004, JBIC extended a loan amounting to ¥ 11,345 million to implement
       Eastern Bangladesh Rural Infrastructure Development Project that intends to
       improve access to economic opportunities and social services in rural areas of
       Chittagong Division and Sylhet Division through improving rural infrastructure,
       including upazila roads, union roads, growth centres, ghats (boat landing
       facilities), and Union Parishad Complex.

JBIC ODA Loans Write-off
In March 2004, the Government of Japan through JBIC decided to write-off the
outstanding ODA loans, as well as accrued interest thereof, which were committed to
Bangladesh before the year 1988 to the tune of about 158,090,015,335 Yen (equivalent
to about Taka 8,395 Crore, or US$ 1.46 billion).

Written off ODA loans include, among others, Sonargaon Hotel, Fenchuganj Power
Station, Chittagong Urea Fertilizer Factory, Greater Dhaka Telecommunication Network,
Bakhrabad Gas Field, Kaptai Hydro Power Station, Sylhet Combined Cycle Power Plant

JBIC will make the cancellation of the payment every fiscal year. The resources available
from Japan's debt cancellation, so-called Japan Debt Cancellation Fund (JDCF), will be
utilised as GOB budget support for social development and poverty reduction in
accordance with the result of the consultations between the two Governments.

In the budget for FY 2005-06, the Government of Bangladesh has also allocated Taka
900 crore, made available from JDCF resources. Apart from periodic road maintenance
by RHD and LGED, these resources will be utilised for the 4 lane Dhaka-Chittagong
Highway, Strengthening of Bangladesh Police, Agriculture Technology Transfer, Health
Card Projects, Pontoons in inland River Ports, Power plant rehabilitation etc.

      Summary on Annual Report “K-PACT 2005 - We believe"
                                     Ms. Selina Rahman


Good governance, democracy, corruption and transparency have become a global
agenda in recent days. It is known to all that corruption is a major challenge in the
establishment of good governance in a country. Corruption slows down the investment
and growth. It prevents fair distribution of national wealth and broadens the gap between
the rich and the poor. In a corrupt state, citizens are unwilling to do anything which does
not bring them gratification. Thus corruption stands as an obstacle to good governance.

Korea realised the importance of good governance, transparency and corruption free
society in the global context. In order to establish corruption free nation, representatives
from the four sectors (public, political, private and civil sector) formed the K-PACT on
March 2005. K-PACT stands for the Korean PACT on anti-corruption and transparency.

Back ground and objectives of the K-PACT
The Korean PACT on anti-corruption and transparency (K-PACT) is a creative response
to the failure of previous anti-corruption strategies and recent new developments. The K-
PACT aims at increasing transparency based on cooperation of the four sectors of
society: the public, private, political sectors and civil society. The K-PACT includes all
agendas pertaining to improving transparency in Korea from amending the Anti-
Corruption Act to provide for greater information disclosure, improved corporate
transparency and strengthened participation of civil society. The participating parties of
the K-PACT have contributed through various activities such as legislation of necessary
initiatives, heightened public awareness through education and campaigns, the
establishment of related bodies and research based on the voluntary efforts and
cooperation of each party according to the tasks set forth by the Pact. With these efforts
the K-PACT has greatly contributed to the improvement of transparency in Korean

Transparency International (TI) has also recognised the contributions of the K-PACT in
improving the transparency of Korean society during its announcement of the 2005
Corruption Perception Index. The main objectives of K-PACT are :
       The K-PACT helps solve the problem of corruption, enhance transparency and
        raise international confidence
       Reduction in anti-corruption costs and time
       The K-PACT can provide a foothold for building an advanced society.

Chronological Progress of the K-PACT 2005

    October 20, 2004          Transparency International (TI) Korea's proposal for a social
                              pact to initiate the K-PACT movement
    December 8, 2004          Transparency Forum, YoonKyung Forum, TI Korea etc.
                              constituted a forum on the topic of "Anti-Corruption: From
                              Governance to the Social Pact".
    January 3, 2005           Declaration of One Hundred Citizens Calling for the K-PACT
    January 7, 2005           Agreement between public and private sectors and civil
                              society for the Steering Committee of the K-PACT

    Deputy Chief Accounts Officer, Internal Resource Division, Ministry of Finance

 January 17, 2005             Yoonkyung Forum, TI Korea and Anti-Corruption
                              Congressmen Forum formed a forum on the topic of "The
                              Role of Public, Private Sectors and Civil Society for a
                              Transparent Society"

 January 25, 2005             Specialists in various sectors were surveyed about corruption

 4-28 February, 2005          The Steering Committee and subcommittee for the K-PACT
                              each met three times

 March 9, 2005                The Ceremony of the Pact with 120 major figures from public,
                              political and private sectors and civil society. The publication
                              of the Pact and the Citizen's Charter for a transparent society.

 April 29, 2005               Leading figures from the government, political parties,
                              business and civic groups signed the K-PACT, pledging
                              voluntary efforts to fight corruption and enhance

 September 13, 2005           Health fields including the government and private groups
                              signed the K-PACT

 November 9, 2005             Financial fields including the government and private groups
                              signed the K-PACT

Highlights of the K-PACT 2005

Public Sector Activities

1. Leadership Role by the Public sector
   (a) Leadership in implementation and review of the K-PACT
        Development of legislation and action plans for the K-PACT agenda
        Active support for successful establishment of the Pact in the form of
         budgetary and human resources
   (b) Active role in the implementation and dissemination of the K-PACT
          Implementation of tasks for each government body according to the K-PACT
          Encouragement of other Public sector areas to actively participate in the pact
          Continuous expansion of the K-PACT at the regional level
          Activation of a council for improved transparency of state owned enterprises
          Continuous adoption of additional pacts for the dissemination of the K-PACT
           by public corporation.

2. Results of follow-up measures to the K-PACT
        Declaration of the K-PACT in the public sector
        Project activities of the Public Corporation's Council for K-PACT

Political Sector Activities

Parliament members, representatives of political party have jointly formed several
committees to the amendment of anti corruption and transparency related laws directly or
indirectly involved with k- pact. These include

          National Assembly Law
          Public servant‘s ethics law
          Defense Acquisition and Procurement Law
          Anti-corruption Law
          Political funds Law

         Act on External Audit of listed companies
         Law on the establishment and operation of the Ombudsman of Korea.

Economic Sector Activities

After intense discussion meetings some suggestion are recommended to eradicate
corruption from the economic sector
         The business community began to implement the pact, strengthen
          transparent management system by transforming the corporate management
          structure and increasing accounting transparency.
         Economic sector's K-PACT council initiated various efforts to check and
          expand private sector activities
         Training for the expansion of ethical management was also emphasised
         K-PACT helped Korea to overcome the problems it has faced in the past
          during the process of rapid industrialisation and provided an opportunity to
          enter into the ranks of advanced countries.

Civil Society Activities

The civil society activities are mentioned below

1.      Tasks for civil society suggested by the K-PACT
         Strengthening efforts to increase participation of civil society by recognising
          its importance in monitoring activities
         Strengthening the responsibility of civil society
         Strengthening education for transparency
         Eradication of corruption-friendly social culture
         Activities demanding legislation for the encouragement of citizen participation

2.      Activities of civil society for the implementation of the K-PACT
         Preparation and leadership role of regional pacts
         Participation in the K-PACT. In each sector, civil society creates public
          benefit in the position of a common citizen and not as a direct stakeholder.
         Youth education on transparent society

3.      Future Activities
         Strengthening of participation and the role of civil society in the K-PACT by
          sector and region
         Strengthening of exchange and coherence with civic groups engaged in
          legislative activities to encourage citizen's participation through means such
          as the Citizen Monitior System or the Citizens' Ombudsman System
         Support for educational activities on transparency led by the civil sector

Supplementary Activities
Supplementary activities are mainly focused on creating a better environment for the K-
Pact and monitoring its implementation. Some supplementary activities are mentioned

      Creating an environment for the K-PACT
      Promotional activities for the K-Pact
      Monitoring and evaluating the implementation of K-Pact

Evaluation and Prospects of the K-PACT
Transparency International stated that the Korean society (public, political, private and
civil) along with different sectors such as construction, health care and defense have
improved transparency by implementing the various suggestions of K-pact. Moreover,
they also initiated the formation of a sustainable system, dissemination and strengthening
of cooperative network and used the K-pact a model as a whole.

The K-pact model would serve as a cornerstone to make Korea a transparent and an
advanced nation as a whole by reinforcing accountability, transparency and management
functions of the Korean Government and administration.

Lesson Learned
In order to eradicate corruption and enhance transparency in Bangladesh, effective and
independent Anti-corruption Commission can help to a great extent. Moreover, recent
establishment of "Tax Ombudsman" is a step forward in the right direction.

Workshop on "Dealing with Fraud and Corruption in Auditing"
                        December 12-17, 2005, Lahore, Pakistan

                                   Md. Golam Rahman 

1.0      Introduction

The workshop on "Dealing with fraud and corruption in auditing" was held in Lahore,
Pakistan on December 12-17, 2005. Asian Organization of Supreme Audit Institutions
(ASOSAI) and the International Organisation of Supreme Audit Institutions (INTOSAI)
Development Initiatives (IDI) organised the workshop. The Office of the Auditor General
of Pakistan hosted the workshop. Thirty participants from 15 Supreme Audit Institutions
(SAIs), namely Bangladesh, Bhutan, China, India, Iran, Indonesia, Malaysia, Maldives,
Nepal, Oman, Pakistan, Philippines, Sri Lanka, Thailand and Turkey participated in the
workshop. Mr. Muhammad Yunis Khan, Auditor General of Pakistan, opened the

The workshop provided the participants with basic knowledge and skills needed in fraud
prevention and detection in conducting audit – financial, performance or special. The
course aimed to enable the participants

       To assess the risk of possible existence of fraud or corruption in major areas like
        contracts (procurement, service and construction), revenue collection, cash
        management, general expenditure, IT environment etc.
       To adopt additional audit procedures in testing their occurrence
       To gather additional audit evidence in proving their existence
       To recommend measures in preventing their occurrence

2.0      Course Modules

2.1 Introducing Fraud and Corruption

Understanding fraud and corruption - this sub-module dealt with conceptual definitions of
fraud and corruption, their elements, the most common types of fraud and corruption and
the motivational & organizational factors that enhanced the probability of fraud and
corruption. The auditors should be aware of the possible existence of fraud and
corruption in workplaces and be able to recognize these. Though fraud and corruption
are two distinct elements, there are many instances where a complex correlation
between the two is found. It is also important to understand the factors that increase the
probability of the occurrence of fraud and corruption to boost the auditor‘s sensitivity to
their possible occurrence.

State of fraud and corruption – the content of this sub-module was the state of corruption
in the Asia Pacific region based on the Transparency International Corruption Perception
Index –2003 and 2004 and the Anti-Corruption Action Plan of the Asian Development
Bank (ADB) / Organization for Economic Cooperation and Development (OECD), Anti
Corruption Initiative for Asia and the Pacific and other International anti-corruption policy

The incidence of fraud and corruption in developing countries in general and South Asian
countries in particular is too high compared to that of the developed countries. As per the
Transparency International Corruption Perception Index 2003/04, these countries ranked

    Deputy Director, Financial Management Academy

low. The prevalence of fraud and corruption in least developed and developing countries
consume unbelievable amount of resources which as a result prevents all development
efforts from yielding the desired results/outputs. Since corruption has adversely affected
development efforts, governments, private sectors and civil societies alike have attached
top priority to detection and prevention of fraud and corruption.

2.2 Preventing Fraud and Corruption

Clarifying roles and responsibilities of different role players - this sub-module
incorporates the responsibility of the management of any entity with regard to the
prevention of fraud and corruption. It is their responsibility to put in place proper control
mechanism in order to prevent fraud and corruption. Internal control system is part of this
mechanism and management is responsible for devising and maintaining the internal
control structure. Management's philosophy and operating style will greatly influence the
control environment. Management should also have in place an adequate Fraud
Prevention Scheme or Plan to reduce fraud and corruption.

On the other hand, since fraud and corruption have become an important issue for
countries around the world, the role of audit in addressing this issue has come under
critical scrutiny. There is an increasing expectation that SAIs should, through concerted
action, play an effective role in promoting a culture that values honesty, responsibility and
accountability in the exercise of authority and utilisation of national resources. By doing
this, auditors can help prevent fraud and corruption.

2.3 Detecting Fraud and Corruption

Overview of fraud and corruption detection process - this sub-module put emphasis on
the following six major steps:

       Assessing risks of fraud and corruption on entity wide basis
       Identifying red flags in a particular or specific high risk area
       Responding to the results of fraud and corruption risk
       Going beyond red flags- further examination
       Documenting the auditor's consideration of fraud and corruption
       Communicating about fraud and corruption to concerned parties

Assessing risks of fraud and corruption - this sub-module emphasized the fact that fraud
and corruption risk assessment is an integral part of auditor's risk assessment in the
planning and execution process of a normal audit. In order to effectively deal with fraud
and corruption during audit, auditors should be able to set the tone on fraud awareness
and sensitiveness from the very beginning of their audit by maintaining effective
communication among team members by discussing and brainstorming on how and
where fraud and corruption can be perpetrated in an entity. This practice becomes a
good basis for obtaining information needed to identify and assess fraud and corruption
risks. A proper process of fraud and corruption risk assessment at an entity wide level will
help auditors to identify high-risk areas, which then become a basis for auditors to
respond adequately by identifying red flags particular or specific to each high risk area

Identifying red flags - this sub-module familiarized the participants with the identification
of "red flags" which refer to a signal that informs or indicates that something is different
from the norm or the expected activity. Identifying red flags is very crucial for the process
of fraud detection. It delved deep into the details of the red flags pertaining to different
high-risk areas, contracts (procurement, service and construction), revenue collection,
programme management, general expenditure and IT environment. The commonly found

frauds in each high-risk area were also categorized to enable auditors to be aware of the
possible frauds.

Going beyond red flags-further examination - this sub-module stressed the need for the
collection of audit evidence, which is the most important of the audit process. The role of
audit evidence is even greater while dealing with fraud and corruption. During the
process of audit, auditor should always remain alert about the red flags and indicators of
fraud. Audit evidence is obtained during all phases of the audit process. Therefore,
auditor should use his professional judgement on appropriate mix of audit evidence and
decide on 'sufficient, competent and reliable evidence', which would reasonably establish
the existence or non-existence of fraud/corruption.

2.4 Deriving conclusions

Reporting and follow-up actions – this sub-module dealt with reporting of fraud and
corruption, which is more sensitive than other common audit findings. If fraud and
corruption issues were found during an audit, some follow-up actions would be required
according to the mandate of different SAIs.

Auditors therefore should ensure that findings on fraud and corruption are

         Accurate
         Objective
         Clear and
         Timely

The follow-up action will usually include
       Coordination with other agencies like anti-corruption, media
       Investigation and
       Preservation of the evidence

3.0       Lessons learned

The workshop has enabled participants to deal with red flags (fraud indicators), fraud
triangle (three conditions that generally are present when fraud and corruption occurs-
incentive or pressure, opportunity and rationalisation or attitude), professional skepticism
(an attitude that includes a questioning mind and critical assessment of audit evidence),
kiting ("kites" refer to checks from bank to bank) and lapping scheme ("laps" refer to
consecutive accounts). It has also acquainted participants with the dynamics of
corruption (Corruption = Monopoly power + Discretion - Accountability).

The workshop created ample opportunity for the participants to enhance their skills and
knowledge on modern auditing practice. The participants will now be able to assess risks
of fraud and corruption at entity level in accordance with INTOSAI Audit Standards and
ASOSAI Guidelines for dealing with fraud and corruption. The participants are expected
to share their knowledge and experience with other colleagues in their workplaces so that
the whole department can be benefited.

The workshop also created an excellent opportunity to exchange ideas and views on
different issues e.g. role of auditors, management, anti-corruption agency, media etc. in
combating fraud and corruption, power and functions of different SAIs, challenges faced
by auditors and so on. Informal discussions on history, culture, tradition, family tie and
social bond, public-private partnership, good governance, gender issues,
industrialisation, environmental hazards, science and technology etc. were held among
the participants which helped a lot to broaden views and ideas of individuals.

4.0    Closing ceremony

The closing ceremony of the IDI-ASOSAI workshop on 'Dealing with Fraud and
Corruption in Auditing' was held at Emerald Hall, PC Hotel, Lahore on December 16,
2005. Mr. Wazir Ahmed Qureshi, Deputy Auditor General of Pakistan formally closed the
workshop. He advised all participants to share the knowledge gained in the workshop
with other colleagues in their respective countries.

5.0     Conclusion

Fraud and corruption is a global concern. It has assumed paramount importance not only
because of its widespread occurrence both in the private and public sector as reported by
auditors but more so because of the wide publicity in the media. One of the major roles of
the SAIs is to ensure accountability in the public sector, and through this, help establish
good governance. Detection and prevention of fraud can be one step forward toward the
establishment of good governance where SAIs have very important roles to play. SAIs
should try to adopt a formal policy or strategy to be pursued by the executive for
combating fraud and corruption.


                           OF BANGLADESH

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Bbvg Avng` †PŠayix                                                  Ryb 11, 2006 wLªt|
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I received the publications of your office. I extend my thanks for sending me these
exceptional, reader friendly and information rich publications.

Enam Ahmed Chaudhury                                                        June 11, 2006
Chairman (Minister of State)
Privatization Commission
Government of Bangladesh

                         REPUBLIC OF YEMEN

We acknowledge receipt of your kind letter No. CAG/Publication-4/2005 dated March 30,
2006 together with a copy of your quarterly publications (REVIEW Issue 3 Volume 12
October-December 2005, and CAG NEWS Volume 3 October-December, 2005), issued
by your respectable SAI.

We are, in COCA, grateful to you for your consideration.

Dr. Abdullah Abdullah Al-Sanafi                                                May 31, 2006
Prsident of COCA


I thank you for the quarterly publications of SAI Bangladesh : CAG NEWS, October-
December 2005 and REVIEW, October – December 2005. We find the material to be
very informative and useful for reference. Your contributions are kept in our library for our
officers to read.

Mac Pona Kawa                                                                  June 6, 2006
Deputy Auditor-General
Auditor-General‘s Office
Papua New Guinea


Thank you very much for forwarding copies of the quarterly publications of SAI
Bangladesh : CAG NEWS and REVIEW. I take this opportunity to commend you and
your colleagues for the wonderful publications. I find them interesting and useful.

M. Humayun Kabir                                                         May 17, 2006
Embassy of the People‘s Republic of Bangladesh
Kathmandu, Nepal


I write to acknowledge with thanks the receipt of the quarterly publications of SAI
Bangladesh : CAG NEWS, October-December, 2005 and REVIEW, October-December
2005. The contents of publications are interesting and informative and also provide an
insight into subtle issues of audit and accounting.

I would like to congratulate all those in your office who have been involved in the
publication exercises.

Ismat Jahan                                                              May 31, 2006
Embassy of the People‘s Republic of Bangladesh
The Hague, Netherlands


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