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Annual Report of the National Audit Office 2007 - Government of

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Annual Report of the National Audit Office 2007 - Government of Powered By Docstoc
					2007–08
                       Table of Contents


                                                         Page

Corporate Profile                                          7

Statement from the Director                                9

Senior Management Team                                    11

Statement on Corporate Governance                         19

Activities and Performance for 2007-08                    23

Corporate Social Responsibility Statement                 29

National Audit Office – Financial Statements 2007-2008    30




                                    3
4
                     Mission Statement




                         OUR VISION


                    To be a Model Organisation

               Providing World-Class Audit Services




                        OUR MISSION

The National Audit Office is an independent Public Organisation set
up under the Constitution. We promote good governance in the Public
Sector and report to the National Assembly on the efficiency and
effectiveness with which Public Funds have been managed. We
promote continuous improvement in the management of Government
resources. We ensure the continuous professional development of our
staff.




                                5
6
                                Corporate Profile

The National Audit Office

The National Audit Office (NAO) emerged in its present form since 1968, when
Mauritius became independent. Section 110 of the Constitution of the Republic of
Mauritius provides for the appointment of a Director of Audit whose office is a public
office. The institution that the Government has mandated to carry the examination of the
accounts of the Ministries and Departments on behalf of the Legislature has become
known as the National Audit Office and the Director of Audit is the constitutional head of
that Office. The Finance and Audit Act further amplifies the constitutional powers and
duties of the Director of Audit, as well as the method of control and management of
public funds.


Responsibilities


Besides Government Ministries and Departments, NAO is also responsible for the audit
of the accounts of all Local Authorities, several Statutory Bodies, the Rodrigues Regional
Assembly, Religious Bodies, and foreign-funded projects.

In line with INTOSAI standards and to meet the expectation of Government in respect of
the audit approach to Programme-Based Budgeting, the Finance and Audit Act has been
amended to include Performance Audit in the mandate of NAO.


Staffing Structure

In the performance of his duties and in the management of the NAO, the Director is
assisted by his Deputy Directors, Assistant Directors, the Head of Examiners Cadre and a
staff of about 150 officers comprising professional accountants, technical and
experienced officers and support staff.


Our Finances

Government Ministries/Departments are not charged any fees for the audit of their
accounts. In the case of the audit of accounts of Local Authorities, and Statutory Bodies,
the NAO does charge a fee, but the whole revenue collected goes to the Consolidated
Fund of the Republic and our expenses are wholly met by Government. Our revenue and
expenditure for the last four financial years, on a cash basis, have been as follows:


                                   2004-05          2005-06       2006-07        2007-08
                                        Rs               Rs            Rs             Rs
Revenue                          3,603,000        3,778,500     5,674,000      7,778,000
Expenditure                     50,065,348       52,931,077    54,994,704     61,419,828




                                             7
8
                         Statement from the Director

This is the second Annual Report on the activity of the National Audit Office (NAO) of
the Republic of Mauritius. The publication of annual reports by Ministries and
Departments is not yet mandatory, except in a few instances. However the XIXth
Congress of the International Organization of Supreme Audit Institutions (INTOSAI)
meeting in Mexico resolved to adopt, publish, and distribute the document entitled
“Mexico Declaration on Independence”. The Declaration recognises eight core
principles as essential requirements of proper public sector auditing. The third principle
states that SAIs (Supreme Audit Institutions) should submit an annual activity report to
the Legislature, which they should make available to the public.

Government audit today enjoys worldwide recognition and in this context, national SAIs
play a significant role in auditing government accounts and operations and in promoting
sound financial management and accountability. As the external auditor, NAO provides
the National Assembly with an independent assessment of the performance and financial
statements of Ministries and Departments of the Republic of Mauritius. Our financial
audit work helps government enhance effective financial management and transparent
reporting.


Provision of audit and assurance services

The provision of audit and assurance services relates primarily to the statutory duty of the
Director of Audit to carry out audits of the accounts of Government Ministries and
Departments and annual audits of the financial reports of statutory and non statutory
bodies, in all comprising some 1500 accounts. The cost of this work is funded from the
annual appropriation approved by the National Assembly. The major portion of our
output relates to financial audits. As from 2008-09 our output will also be related to
performance audits.

There are two main products from an annual audit:

   the Audit Report; and
   the Management Letter.

The Audit Report is addressed to the readers of the financial statements. It provides the
auditor‟s independent opinion on whether the financial statements fairly reflect the
entity‟s performance and financial position. If the financial statements fairly reflect the
entity‟s financial performance and position, the auditor issues an audit report with an
unqualified opinion. However, if the auditor identifies a material error or omission in the
financial statements, the auditor issues an audit report with a qualified opinion.

The Management Letter is addressed to the Chief Executive of the entities. It sets out any
significant issues identified by the auditor during the audit and provides
recommendations for improving the entity‟s controls, systems, and processes.


The year in review

Significant changes in the accounting and auditing profession and in the operating
environment in the public sector continue to have a major effect in our work. A
significant change in the accounting and auditing profession has been the adoption of
International Financial Reporting Standards (IFRS).
                                             9
According to the spirit of the Financial Reporting Act 2004 (FRA), all public interest
entities including some 40 statutory bodies listed in the Schedule of the Act, should
prepare their Financial Statements in accordance with International Financial Reporting
Standards and should include in their Annual Report a Corporate Governance Statement.
Unfortunately due to my insistence to the statutory bodies to comply with the above spirit
of the Act, the Finance Managers of some of the bodies who did not want to comply with
these requirements of the Act solicited the support of the Financial Reporting Council
(FRC). The latter did support them and amended the FRA to exclude most of the
statutory bodies from list in the Schedule.

As the auditor of these statutory bodies, I have to give an opinion on the true and fair
view of the financial statements, based on the accounting framework under which the
financial statements have been prepared. As the accounting framework adopted by
Mauritius is IFRS, I have therefore insisted with practically all statutory bodies, to submit
to me their financial statements prepared in accordance with IFRS and their draft Annual
Report with the Statement on Corporate Governance for audit purposes.

For most of these statutory bodies, 2006-07 was the first year their audits had to be
carried out under IFRS. Therefore, during 2006-07 and part of 2007-08, we turned our
attention from preparing our staff to audit in a generally accepted accounting principles
environment to actually carrying out audits under IFRS. Training in IFRS and
International Standards of Auditing (ISA) have been organised, and a new audit manual
ensuring compliance with these standards have been adopted.


Risk Management

Up to now, we have never bothered to identify our key strategic risks. However with the
changes in the public sector and the accounting and auditing professions, the introduction
of Programme Based Budgeting together with our adoption of IFRS, we had to react.
Three key strategic risks identified are:

 Audit failure – the risk that we issue an incorrect audit opinion with material impact, or
  a report that is significantly wrong in nature or process. Failures to meet deadlines,
  targets etc
 Loss of capability - the risk that our staff lack the technical and other skills our audit
  work requires, and
 Loss of reputation - the risk that we may lose our reputation, integrity or credibility


Concluding remarks

I would like to extend my thanks to the two Deputy Directors of Audit, the ten Assistant
Directors of Audit and the Head, Examiner Cadre for their guidance and support. I thank
all the technical staff for their efforts and for their commitment to integrity, honesty, and
independence. Finally, I would like to acknowledge the contribution of the supporting
staff.




                                             10
                         Senior Management Team



Fellow of the Association of Chartered Certified
Accountants (FCCA), Dr Rajun Jugurnath is
currently the Director of the National Audit Office.
He holds a PhD in Business Administration, an MBA
and the Certificate in Company Direction from the
Institute of Directors of New Zealand.

Dr Jugurnath joined the National Audit Office in
1975. In 1991, he was appointed Director of the
Management Audit Bureau. He served the Bureau for
over 10 years before assuming his current position.
In 1998 he was seconded to the PTA Bank, in Kenya,
as Officer in Charge of Management and Internal
Audit.




Fellow of the Association of Chartered Certified
Accountants (FCCA), UK and Member of the Association
of Government Accountants, USA, Mrs Philise Tse Yuet
Cheong is also a Fellow of the International Auditor
Fellowship Program of the Government Accountability
Office (GAO), USA.

She joined the National Audit Office in 1980. She was first
appointed Auditor, and following subsequent promotions,
she holds the post of Deputy Director of Audit since 1995.




                                          11
 Fellow of the Association of Chartered
 Certified Accountants (FCCA) and a
 certified quality assurance reviewer on
 financial audits for AFROSAI region, Mr P.
 K. Napaul joined the National Audit Office
 in1977 as Trainee Examiner of Accounts.

 He was appointed Auditor in April 1989.
 He has served in a number of positions in
 the National Audit Office until promoted to
 Deputy Director of Audit in 2001.




 Mrs K.C. Chan Moo Lun is a Fellow of
 the Association of Chartered Certified
 Accountants (FCCA).         She joined the
 National Audit Office in July 1978 as
 Trainee Examiner of Accounts. She was
 appointed Auditor in February 1990 and
 successively promoted Senior and Principal
 Auditor. In July 2001, she was appointed
 Assistant Director of Audit.




12
Mr C.Q.S. Chan Hon Sen is a Fellow of
the Association of Chartered Certified
Accountants (FCCA) and a member of the
Mauritius    Institute  of    Professional
Accountants. He joined the National Audit
Office as Trainee Examiner of Accounts in
June 1981.

Mr Chan Hon Sen formed part of the team
responsible for the audit of SADC
Institutions during the period 1998 – 2000.
He was appointed Principal Auditor in
March 1991 and Assistant Director of Audit
in July 2001.




Mr Khemraj Reetun is Assistant Director of Audit since
2001. He is a Fellow of the Association of Chartered
Certified Accountants (FCCA) and holds an MBA. He
joined the National Audit Office in 1985 as Trainee
Examiner of Accounts.

Mr Reetun has international audit exposure. He formed part
of the team responsible for the audit of SADC Institutions. In
July 2007, he assisted AFROSAI – E as a facilitator for a
Capacity Building Workshop in Ghana.

He was the Chairperson of the Mauritius Institute of
Professional Accountants and Board member of the Financial
Reporting Council.

He is a freelance consultant and trainer




                                            13
Mrs L.F.L. Chung Chun Lam is a Fellow of the
Association of Chartered Certified Accountants
(FCCA) and a member of the Mauritius Institute of
Professional Accountants.

She started her career in the National Audit Office as
Trainee Examiner of Accounts in June 1979. She
gradually climbed up the ladder and became Assistant
Director of Audit in 2003.




          Mr A. Abdool Gaffoor is a Fellow of the
          Association     of   Chartered     Certified
          Accountants (FCCA) and holds a Master
          Degree     in    Business    Administration
          (Finance). He has been in the Auditing field
          for more than 23 years. He started at Bacha
          & Bacha Chartered Accountants before
          joining the National Audit Office in 1987.
          He was appointed Assistant Director of
          Audit in July 2003.

          In 1992 he had a short spell at the Industrial
          & Vocational Training Board as Internal
          Auditor.

          He is a freelance lecturer for ACCA courses.




         14
Mr Deoduth Ramkishore is a Fellow of the
Association of Chartered Certified Accountants
(FCCA), and a member of the Mauritius Institute
of Professional Accountants. He joined the Civil
Service in March 1983 and the National Audit
Office in August 1987.


He obtained the ACCA qualification in
December 1991. He was appointed Principal
Auditor in July 2000 and Assistant Director of
Audit since July 2003.

He is a freelance lecturer for ACCA courses.




Mr. Toolsee Dodah is a Fellow of the Association
of Chartered Certified Accountants (FCCA) and
member of the Mauritius Institute of Professional
Accountants. He joined the Civil Service in 1981
and the National Audit Office in September 1987.
During November 1992 to October 1993 he
worked as Accounting Technician at the
Management Audit Bureau.

He was appointed Principal Auditor in May 2001
and Assistant Director of Audit in July 2004.




                                           15
Mr Lutchmanen Appasamy, Assistant Director of
Audit, is a Fellow of the Association of Chartered
Certified Accountants (FCCA), holder of an MBA
(Finance) a member of the Mauritius Institute of
Professional Accountants (MIPA). In 2006, he was
accredited as a Training Specialist by the IDI
(INTOSAI Development Initiative).

He joined the Civil Service in October 1980 and
worked at the Meteorological Services and the Civil
Aviation Department before joining the National Audit
Office since June 1991. He holds his current position
since July 2004.

He was also designated to serve the Economic Crime
Office (now replaced by ICAC) till June 2001.




          Mr Roger Desire Appasamy joined the
          Civil Service in 1966 at the National
          Transport Authority until February 1973,
          when he joined the National Audit Office as
          Examiner of Accounts. Over the years he
          progressed to appointment as Head,
          Examiner of Accounts Cadre in August
          2006.

          He has attended various training courses
          including one on Quality Assurance
          organised by the AFROSAI – E /
          SADCOSAI Secretariat, South Africa.




         16
Mrs M. L. Wong Chow Ming is a Fellow of the
Association of Chartered Certified Accountants
(FCCA).

She joined the Civil Service in February 1982 as
Clerical Officer at the Central Statistical Office.
In September 1987 she joined the National Audit
Office as Trainee Examiner of Accounts. After
qualifying as an accountant she was appointed
Auditor in 1995. In July 2003, she was promoted
as Principal Auditor and as from January 2008
she has been assigned duties as Assistant
Director of Audit.




                                            17
18
                    Statement on Corporate Governance

Corporate governance is concerned with the structures and processes for decision-making
and accountability, controls and behaviour at the top of organisations. Corporate
governance has been a high profile topic principally because of public concern at a lack
of control at the top of organisations. There is a perception that, in certain cases, senior
managers appear to have been able to act without restraint and that inadequately designed
systems have failed to prevent fraudulent, inefficient or inappropriate behaviour.

In 2001, the Public Sector Committee (PSC) of the International Federation of
Accountants (IFAC) issued a checklist of good corporate governance for public sector
bodies.

The checklist includes the following:

Organisational Structures and Processes

 Statutory Accountability
 Accountability for Public Money
 Roles and Responsibilities

Financial Reporting and Internal Controls

 Annual Reporting
 Internal Controls
 Risk Management
 External Auditors

Standards of Behaviour

Codes of Conduct
Objectivity, Integrity and Honesty


Statutory Accountability

Section 20 (1) of the Finance and Audit Act, 1973, requires the Director of Audit to
submit his report within eight months of the close of the financial year. The NAO has
been consistently submitting its report every year, and that too, within the statutory date
limit. NAO is doing even better. Since 2002, the annual work plan is being prepared and
monitored in such a way that the Audit Report will be submitted not later than December
of each year. Since the past five years, the Audit Report has been submitted before end of
November.


Accountability for Public Money

Accountability for public money is central to funding arrangements in the public sector.
This involves:

   Being clear why and how money is to be spent.
   Ensuring that it is spent for the purposes it was provided.
   Having reasonable assurance that the expenditure is value for money.

                                             19
NAO, being the Supreme Audit Institution, has a direct interest in effective accountability
arrangements. It is our prime duty to ensure proper accountability for public money. Like
other Government Ministries and Departments, our budget is derived from the Annual
Estimates of the Government approved by the National Assembly. We also comply with
rules set out for expenditure and revenue in the Financial Management Manual. We
ensure that the public fund entrusted to us are properly safeguarded, used economically,
efficiently and effectively and for the purpose for which they were intended.


Roles and Responsibilities

Clarity over roles and responsibilities helps ensure that everyone knows his
responsibilities and what is expected of him. This reduces the likelihood of confusion,
disagreement or failure to do the necessary work or take the necessary actions.

At the NAO, each grade has its Scheme of Service, and each staff is provided with a copy
of his Scheme of Service together with a Manual of Instructions where roles and
responsibilities are clearly laid down.


Annual Reporting

Except in a few instances, the publication of annual reports by Ministries and
Departments is not yet mandatory. However, in an endeavour to lead by example and to
promote Good Governance in the Civil Service, NAO has started to publish its Annual
Report as from last year. In the same vein, although NAO is not under any statutory
obligation to prepare its Financial Statements, it has been doing it since fiscal year 2000-
01. The accounts of NAO have been subjected to scrutiny by an external audit firm.


Internal Controls

In line with Government policy, NAO complies with the requirements of the Financial
Management Manual, which sets out the framework for effective financial management
and control in the public service.

An effective internal audit function was in place previously as part of the systems of
internal control. However, through oversight that function has stopped since the past five
years as no staff was designated to perform this function. Remedial action has been taken
this year. Two senior officers have been assigned to carry out this function.


Risk Management

The NAO, as the Supreme Audit Institution, has a responsibility to maintain the highest
standards of propriety, make effective use of its resources and produce high quality work
for Parliament.

Risk management being a fairly new concept in the public sector, there is at present no
system in NAO designed to identify and manage risk. However, the following strategic
risks have been identified:




                                            20
 Failure to meet the statutory date limit for submission of my Audit Report on the
  accounts of the Government to the National Assembly
 Failure to meet the target set in respect of completion of the Annual Work Programme
 Failure to manage the resources voted by the National Assembly efficiently and
  effectively
 The risk that our staff lack the technical and other skills our audit work requires
 Damage to the reputation and integrity of the National Audit Office.


Strategic risk mitigation actions

The key mitigation actions are:

 Adhering to professional auditing standards
 Setting up of a Quality Assurance Unit
 Ongoing training and development of our staff



External Auditors

In most countries, a Supreme Audit Institution (SAI) is generally established under the
national constitution to conduct public sector auditing. Their mandates generally include
what is to be audited, how the audits are to be conducted and to whom the audit reports
are to be submitted. However, there are no provisions for the audit of the SAI.
Nevertheless, in most countries, in the name of good governance, the SAI gets its
accounts audited by accounting firms. It is the same for the NAO of Mauritius.



Codes of Conduct

The adoption and application of a code of ethics for auditors in the public sector promote
trust and confidence in the auditors and their work.

NAO has adopted the Code of Ethics (the Code) issued by Government. In addition, staff
of NAO is required to adhere to the Code of Ethics of INTOSAI (International
Organisation of Supreme Audit Institutions), a comprehensive statement of the values
and principles, which should guide the daily work of auditors in the public sector.


Objectivity, Integrity and Honesty

The public expects auditors to conduct their work in accordance with ethical principles.
Objectivity, integrity and honesty are maintained when auditors perform their work and
make decisions that are consistent with the broader interest of those relying on the
auditors' report, including the public. At NAO, we are totally committed to the principles
of objectivity, integrity and honesty to inspire public confidence and trust.




                                           21
22
                  Activities and Performance for 2007-08

Strategic Plan 2007- 2010

Financial Audit

As in the past years the resources of the NAO were focused in carrying out financial audit
works. In accordance with our Strategic Plan 2007-2010, we have put in place a new
Financial Audit Manual. The Manual has been designed to reflect best practice in the
auditing profession, in which there has recently been a period of significant development.
It also provides guidance on the application of International Standards on Auditing
(ISAs) to our financial audits.

The Manual together with the first Annual Report of the NAO and the Manual of
Instruction and Styles Book were officially launched by the Minister of Finance in
August 2008.

Our Audit Methodology has been reviewed and a new Audit Methodology together with
new Audit Policies and Timeline have been adopted. The staff are presently being trained
in this direction and it is planned that they should put the new methodology, policies and
timeline into practice as from July 2009.


Performance and Environmental Audit

Funding having not been materialised, the training of our staff in Performance Audit
could not start as planned in July 2008. Government has now agreed to fund the training
programme and has approved the recruitment of additional staff. The recruitment exercise
has been completed by mid of February 2009, and the training will start as from 1
March. The training will be carried out by the National Audit Office of UK and will be
for a duration of one year. It will comprise both theoretical sessions and on the job
training.


Financial Audit Programme

Because of lack of staff and financial resource, it has not been possible to put in place a
Research and Development Cell and consequently the preparation of a revised set of
audit programmes. It is planned to prepare the set of audit programmes by mid 2009.


Quality Assurance

An awareness programme on quality assurance has been conducted for all staff. Team
Leaders have been trained, in February 2009, to carry out the first level of quality control.
The first internal peer review is planned for May 2009.




                                             23
Training

Since our performance management system starts as from 1 January 2009, it has not been
possible to carry out a training needs analysis. However, with the adoption of
International Financial Reporting Standards (IFRS) by statutory bodies, together with our
adoption of the new Financial Audit Manual, we had to devote most of our training
programmes on these two items. As a result, only a few staff have had an opportunity to
undergo training on soft skills, in particular leadership and negotiation skills. It is to be
noted however, that many of our staff have participated in training programmes organised
by SAI India, AFROSAI-E and ASOSAI.

The latest version of the software IDEA has been purchased. Training on this new
version is being planned for June 2009.


Intranet

The Intranet Library has been redesigned and kept updated on a daily basis. It is working
well but unfortunately it is accessible only in the Head Office. Because of lack of
connectivity, staff posted on sites, outside the Head Office cannot access the Intranet.


Customer Satisfaction Survey

Because of the change in our audit approach and policies, the Employee/Customer
Satisfaction Survey is now programmed for end of September 2009, when most of the
audits planned will be completed.


Social Activity

Our annual Family Sports Day, organised at the Maryse Justin Stadium, Reduit in August
2008 was a big success in terms of staff attendance and participation. The atmosphere
was friendly, collaborative and very sportive.

To encourage teamwork, team spirit, sense of belonging, collaboration and cooperation,
sine qua non for the success of an audit organisation, staff are encouraged to organise and
participate in social activities. The Audit Fund has organised an eight-a-side football
tournament in August 2008. Furthermore, staff are encouraged to participate in the
football, yoga and aerobic activities organised regularly by the Office and the Public
Officers Welfare Council (POWC).

One of our staff participated in the culinary competition organised by the POWC. She
was the winner of the first prize in the Dessert/Pastry – Oriental category.




                                             24
Audit Activities and Performance


The portfolio of the National Audit Office for the fiscal year 2007-08 comprised:

                                                                 Units
                Autonomous Departments                             15
                Ministries                                         20
                Units/divisions of the 20 Ministries               92
                Statutory Bodies                                   85
                Non-Statutory Bodies                               23
                Special Funds                                      32
                Municipalities                                       5
                District Councils                                    4
                Village Councils                                  124
                Rodrigues Regional Assembly                        39
                Total                                             439



Thus the NAO was responsible for the audit of 439 units. It is to be noted that some of
the above 92 units/divisions of the Ministries and 85 statutory bodies comprise many sub-
units. For example, the Ministry of Education, Culture and Human Resources has four
zones. Each zone has under its responsibility a number of primary and secondary schools,
which we have to audit. Nevertheless, in the above 92 units/divisions, we have accounted
one zone as one unit/division. Similarly, the Ministry of Health has five Regions each
with a few hospitals and a number of Area Health Centres, Community Health Centres,
Health Offices etc. Again, each Region has been accounted for as one unit/division. Idem
for the Ministry of Agriculture, Social Security, Public Infrastructure, Labour and
Employment, Youth and Sports and Police Department. If these sub-units are added, the
NAO had the responsibility to audit around 1,500 units and sub-units.

Most of the sub-units are spread out around the whole island. Many of them are very
small in terms of annual financial expenditure and low in terms of audit risks, while
others, for example Area Health Centres, some State Secondary Schools, Police District
Head Quarters etc, are quite big but medium in term of audit risks. The staffdays required
to audit these sub-units range from one to 50. Because of lack of human resources and
low audit risks, these sub-units are audited on a five-year rotation basis, though it would
be preferable to have a rotation period of three years.

The audits of Statutory Bodies, Local Authorities and Special Funds are undertaken only
after receipt of their approved financial statements. As a result, for the fiscal year 2007–
08, we have audited, mainly, accounts relating to fiscal year 2006–07 and those of
previous years where these financial statements have been submitted during fiscal year
2007–08.




                                            25
For the year under review, we have completed the audit of 444 accounts against the 510
accounts planned as follows:

                                                            Total Audits
                                              Planned     Completed      % Completed
 Ministries/Departments and their units          221           181                84
 Rodrigues Regional Assembly                      28            28              100
 Statutory Bodies                                 76            67                88
 Non Statutory Bodies & Special Funds             52            35                67
 Local Authorities                               133           133              100
 Total                                           510           444                87



Overall we have completed 87% of the audit planned against our target of 80%. The
remaining 13% represents work in progress not completed mainly due to difficulty in
coping with, as well as mastering compliance to changes in accounting (IFRS) and
auditing standards (ISA). Also, additional staffdays were needed to complete the audit
due to complexities met in some of the audits including difficulty in getting requested
information from auditees, delay in obtaining appointments with supervising officers to
discuss audit findings and the long delay in the resubmission of amended financial
statements after audit. The low percentage covered in respect of Non Statutory Bodies
and Special funds is mainly due to non submission of financial statements by many of
these bodies.

In the future as the requirements of IFRS and ISA and the application of our new
methodology stabilise, we would like to see improvement in the timeliness in completing
audits and reporting.

These audits were conducted by 118 professional/technical and 2 supporting staff. In
addition, the Office was serviced by the Director, 2 Deputy Directors, 10 Assistant
Directors, the Head, Examiner Cadre, and 16 supporting staff comprising among others,
the Senior Human Resource Officer, the Financial Operating Officer. The total staffdays
available in 2008 to carry out all the activities of the NAO, i.e. the audits, training,
meetings, social activities etc was 22,550. Out of this, 15,825 were available to carry out
the audit assignments. The number of audits completed was 444. The number of
staffdays allocated for these audits were 14,550 compared to the actual 15,825 staffdays
taken. As explained above, the additional staffdays were needed because of the
complexities and difficulties met in some of the audits as well as in mastering compliance
with new accounting and auditing standards.




                                            26
The Way Forward

Performance/Programme Audit

Government auditing is carried out to ensure accountability. It was initially conducted as
compliance audits, which means accurate account auditing or financial auditing.
Subsequently, government organisations were required to provide effective public
services by efficient management in the performance of their trusteeship obligations,
which in turn necessitated performance auditing. Accordingly, the scope of accountability
is also expanding to include not only financial accountability but also management
accountability and program accountability in order to ensure comprehensive public
accountability. The shift from accountability to public accountability specifically means
that in the history of public auditing, the emphasis has shifted from public responsibility
for the use of public money, to which traditional accountability generally refers, towards
performance auditing, including the auditing of effectiveness. Effectiveness auditing is
also referred to as program auditing. Its evaluation measures are the outcomes and the
social influence of government programs. For the evaluation of performance, cost-based
budgeting is required as a premise and accrual basis accounting needs to be introduced
into public accounting.

With the introduction of a fully-fledged Programme Based Budgeting (PBB) as from
2008-09, NAO is required to carry out “Comprehensive Audits”, an integration of both
financial and programme audits. Programme Audit being a fairly new type of audit, NAO
has to build capacity in this regard. As mentioned earlier, training is being organised in
Performance Auditing for a batch of 18 staff.


Performance Management

With the introduction of the Performance Management System in Ministries and
Departments, the implementation of this system has been extended to NAO. In this
connection, staff has been briefed and training provided on the various components of the
system. Staff have been invited to participate in the identification of key tasks and key
indicators to be used in the appraisal system. Given the specificity of the NAO, it has
been agreed that there should be three levels of Key Indicators namely at:

1. The Divisional Level
2. The Team Level, and
3. The Individual Level

The following key indicators have been identified:

Divisional Level

1. Percentage of Annual Work Program achieved
2. Percentage of final Management Letter despatched within 4 weeks after date work is
   completed on site.




                                            27
Team Level

1. Percentage of audit coverage against Audit Plan
2. Percentage of audit completed within budget time
3. Percentage of client satisfied with the audit process (customer satisfaction)

Individual Level

1. Percentage of task completed within time allocated
2. Percentage of compliance with the Financial Audit Manual
3. Participation in social activities

In addition to the Key Indicators, appraisal will also be carried out on competencies. The
following competencies have been agreed:

Divisional Head

1. Leadership skills
2. Coaching skills
3. Critical thinking skills

Team Leader

1. Leadership skills
2. Coaching skills
3. Contribution to team

Team Member

1. Technical skills
2. Work commitment
3. Contribution to team.




                                            28
              Corporate Social Responsibility Statement

Corporate Social Responsibility (CSR) emphasises the importance of achieving a balance
between operational performance and social well-being of staff. NAO operates within
regulations pertaining to the public sector. Its employees comprise a diverse, multi-
cultural and talented people. We value diversity and the benefits it brings to the
organization.

NAO encourages all members of staff to be good corporate citizens and to strive to
become economic, intellectual and social assets to their local communities. Our personnel
are obliged to act according to a code of conduct that stresses the values and ethics we
stand for.

We recognise that our social, environmental and ethical conduct has an impact on our
reputation. We are committed to advancing our policies to ensure we address aspects of
CSR that we find fit and appropriate. These include good ethical behaviour, concern for
employee health and safety, care for the environment and community involvement.


The Audit Department Fund

The Audit Department Fund has as its objectives the promotion of social activities and
staff welfare within the NAO. The Fund, which is managed by an Executive Committee
comprising nine members elected annually at the Annual General Meeting, derives its
revenue from monthly contribution by the staff.

Over the years, the Fund has organised various activities, such as Family Day, Sports
Day, Farewell Parties, Annual Audit Report Lunch, End of Year Lunch, Visits and
Donations to Charitable Institutions. During the financial year 2007-08, the Fund
organised the following social activities:

                           Social Activities During 2007-08

                           Activities                               Date
       Family Sports Day                                    09 August 2007
       End of year Lunch                                    18 December 2007
       Participation in Civil Service Football Tournament   April – July 2008
       Fun Football Tournament                              April 2008
       Participation in „Culinary Exhibition 2008‟          May-July 2008
       Randonnee at Le Petrin                               14 June 2008
       Aerobic Sessions                                     Every Friday as from
                                                            January 2008
       Yoga Sessions                                        Every Friday as from
                                                            February 2008




                                           29
30
                        Independent Auditors’ Report



                       KPMG                                       Telephone:   +230 207 8888
                       KPMG Centre                                Fax:         +230 207 8885
                       30 St. George Guibert                      Website:     www.kpmg.mu
                       Port-Louis
                       Mauritius




Report on the Financial Statements


We have audited the financial statements of National Audit Office on pages 33 to 49
which comprise the statement of financial position at 30 June 2008, the statement of
comprehensive income, statement of changes in General Fund and cash flow statement for
the year then ended and a summary of significant accounting policies and other explanatory
notes.

Directors’ Responsibility for the Accounts

The Director of Audit is under no statutory obligation to prepare financial statements for
the National Audit Office. However, these financial statements have been prepared in the
pursuance of good governance and by applying International Financial Reporting
Standards.

The Director of Audit is responsible for the preparation and fair presentation of these
financial statements. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates
that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.
We report our opinion as to whether the financial statements properly present the income
and expenses of the National Audit Office, and whether in all material respects the
income and expenses have been applied to the purposes intended by The National
Assembly and conform to the authorities which govern them.

We conducted our audit in accordance with International Standards on Auditing. Those
Standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the accounts are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
 selected depend on the auditors‟ judgement, including the assessment
of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditors consider



                                               31
internal control relevant to the National Audit Office‟s preparation and fair presentation of
the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
National Audit Office‟s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the Director of Audit, as well as evaluating the overall presentation of the
financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.

Opinion

In our opinion,

 the financial statements properly present the financial performance, financial position
  and cash flows for the year then ended in accordance with International Financial
  Reporting Standards;

 in all material respects the income and expenditures have been applied to the purposes
  intended by the National Assembly and conform to the authorities which govern them.

Other matter

We have no relationship with or interests in the National Audit Office other than in our
capacity as auditors.

We have obtained all information and explanations we have required.




KPMG
Public Accountants

Port Louis

Date:




                                             32
Financial Statements 2007 – 2008

Summary of resource outturn for the year ended 30 June 2008


                                                              2008                 2007
                                                                Rs                   Rs

Expenditure

Provisions                                             57,200,000           53,650,000
Contingencies fund                                       4,325,010            1,390,000
                                                       --------------       --------------
                                                       61,525,010           55,040,000
Actual                                                (61,419,828)         (54,994,705)
                                                       --------------       --------------
Over provisions                                            105,182                45,295
                                                       ========             ========




Summary of income payable to the consolidated fund


                                            2007-2008                   2006 -2007

                                     Forecasted       Outturn Forecasted          Outturn
                                             Rs            Rs         Rs               Rs

Audit fees from statutory bodies     5,500,000 7,778,000 4,000,000 5,674,000
                                    ======== ======= ======= =======


The notes on pages 38 to 49 form part of the financial statements.




                                            33
Statement of financial position as at 30 June 2008


                                            Note                2008               2007
                                                                  Rs                 Rs
ASSETS
Non-current assets
Property, plant and equipment                    5        3,467,318          3,732,182
Intangible assets                                6        2,007,235          2,048,581
                                                       ---------------    ---------------
                                                          5,474,553          5,780,763

Long term receivables                            7       15,202,551         14,674,093
                                                       ---------------    ---------------
Total non-current assets                                 20,677,104         20,454,856
                                                       ---------------    ---------------

Current assets
Trade receivables                                           500,000          1,025,000
Other receivables                                8          775,782            814,698
                                                       ---------------    ---------------
                                                          1,275,782          1,839,698
                                                       ---------------    ---------------

Total assets                                            21,952,886         22,294,554
                                                        ========         ==========
EQUITY AND LIABILITIES

General fund                                              5,474,553          5,780,763

Non-current liabilities
Sick leave obligations                                   11,596,828         10,666,283
Passage benefit obligations                               3,605,723          4,007,810
                                                       ---------------    ---------------
                                                         15,202,551         14,674,093
                                                       ---------------    ---------------
Current liabilities
Trade and other payables                         9        1,275,782          1,839,698
                                                       ---------------    ---------------

Total equity and liabilities                            21,952,886         22,294,554
                                                        ========         ==========

………………………..
Director of audit

Date: 30 January 2009




The notes on pages 38 to 49 form part of the financial statements.




                                            34
Statement of comprehensive income for the year ended 30 June 2008


                                                              2008              2007
Income                                                          Rs                Rs

Revenue from Consolidated Fund (Note 10)               64,720,741        59,688,243
Audit fees receivable                                   7,253,000         6,524,000
                                                     ---------------   ---------------
                                                       71,973,741        66,212,243
                                                     ---------------   ---------------
Expenditure
Staff costs (Note 11)                                 (54,752,971)      (52,557,293)
Administrative expenses (Note 12)                     (11,767,780)       (8,923,848)
Audit fees payable to the Consolidated Fund            (7,253,000)       (6,524,000)
                                                     ---------------   ---------------
                                                      (73,773,751)      (68,005,141)
                                                     ---------------   ---------------
Deficit to the General Fund                            (1,800,010)       (1,792,898)
                                                     =========         =========




The notes on pages 38 to 49 form part of the financial statements.




                                            35
Statement of changes in General Fund for the year ended 30 June 2008


                                                              2008              2007
                                                                Rs               Rs

At 1 July                                               5,780,763         7,535,099
Add: capital expenditure                                1,493,800             38,562
                                                     ---------------   ---------------
                                                        7,274,563         7,573,661
Less: deficit                                           1,800,010         1,792,898
                                                     ---------------   ---------------
At 30 June                                              5,474,553         5,780,763
                                                     =========         =========




The notes on pages 38 to 49 form part of the financial statements.




                                            36
Statement of cash flows for the year ended 30 June 2008
                                                                              2008               2007
                                                                                Rs                 Rs
Operating activities
Deficit to the general fund                                            (1,800,010)        (1,792,898)

Adjustments for:

Loss on disposal of property, plant and equipment                            66,229             38,562
Depreciation                                                             1,324,065          1,344,620
Amortisation                                                               409,716            409,716
                                                                     ----------------   ----------------
                                                                                    -                  -
Change in trade and other receivables                                      563,916         (1,045,992)
Change in trade and other payables                                        (563,916)         1,045,992
Change in long term receivables                                           (528,458)        (1,275,900)
                                                                     ----------------   ----------------
                                                                          (528,458)        (1,275,900)
                                                                     ----------------   ----------------
Cash flow used in operating activities                                    (528,458)        (1,275,900)
                                                                     ----------------   ----------------
Investing activities
Purchase of property, plant and equipment                               (1,125,430)            (38,562)
Purchase of intangible assets                                             (368,370)                    -
                                                                     ----------------   ----------------
Cash used in investing activities                                       (1,493,800)            (38,562)
                                                                     ----------------   ----------------
Financing activities
Funds received for purchase of property, plant and equipment             1,125,430              38,562
Funds received for purchase of intangible assets                           368,370                     -
Refund from sick leaves and passage benefit obligations                    528,458          1,275,900
                                                                     ----------------   ----------------
Cash generated from financing activities                                 2,022,258          1,314,462
                                                                     ----------------   ----------------
Change in cash and cash equivalents                                                 -                  -

Cash and cash equivalents at beginning of year                                      -                  -
                                                                     ----------------   ----------------
Cash and cash equivalents at end of year                                            -                  -
                                                                      =========          =========

The notes on pages 38 to 49 form part of the financial statements.




                                            37
Notes to and forming part of the accounts for the year ended 30 June 2008

1.Reporting entity

Section 110 of the Constitution of the Republic of Mauritius provides for the appointment of
a Director of Audit whose office is a public office. The institution that the Government has
mandated to carry out the examination of the accounts of the Ministries and Departments on
behalf of the Legislature has become known as the National Audit Office (NAO) and the
Director of Audit is the constitutional head of that Office. The Finance and Audit Act further
amplifies the constitutional powers and duties of the Director of Audit, as well as the method
of control and management of public funds.

Besides Government Ministries and Departments, NAO is also responsible for the audit
of the accounts of all Local Authorities, several Statutory Bodies and Non-Statutory
Bodies, the Rodrigues Regional Assembly, Religious Bodies, and foreign-funded
projects.


2.Basis of preparation

(a) This is the first set of financial statements prepared on an accrual basis and in accordance
    with International Financial Reporting Standards (IFRS). Comparative figures for the year
    ended 30 June 2007 have also been restated accordingly using IFRS.

(b) The preparation of financial statements by Ministries and Departments is not yet
    mandatory. However, the financial statements of the Director of Audit have been
    prepared in a spirit of adherence to the good governance principles of accountability and
    transparency.

(c) The accounting policies set out below have been applied consistently to all periods
    presented in these financial statements and in preparing an opening IFRS statement of
    financial position as at 1 July 2006.

(d) The financial statements have been prepared on the historical cost basis except for where
    stated otherwise.

(e) These financial statements are presented in Mauritian Rupee (Rs), which is the functional
    currency of the National Audit Office.


3. Significant accounting policies

These financial statements may be classified as Special Purpose financial reports.
Nevertheless the International Accounting Standards Board Framework for the Preparation
and Presentation of Financial Statements has been applied where their applications permit.

The main user of the financial statements of Government is the electorate. Elected
representatives use the financial statements to hold the government and the civil service to
account for the resources, which they were allocated. As such accounting for the probity and
regularity with which resources have been used is one of the prime objectives for
Government


                                            38
accounting. Thus, a budget out-turn report is an essential element to be included in the
financial statements of Government. That is, Governmental financial statements must be
accompanied by a comparison of the actual expenses compared to the original budget
created at the beginning of the fiscal year.

The Summary of Resource Outturn 2007-08 and the Summary of Income Payable to the
Consolidated Fund have been prepared on a cash basis in accordance with the Government
accounting framework. The figures in these statements are published in the Annual
Estimates approved by the National Assembly and in the Annual Report of the Accountant
General.

The Operating Cost Statement is being prepared for the first time and in accordance with
International Financial Reporting Standards (IFRSs), to the extent that they are appropriate
to the government accounting system, and are based on the historical costs.

(a) Income

Income is measured at the fair value of the consideration received.

The revenue necessary to finance the expenditure of NAO is derived from the National
Assembly by means of the Annual Estimates and the corresponding Appropriation Act,
from audit fees for the audit of financial statements of statutory and non statutory bodies
and local authorities, and from other assurance work carried out by Audit. However all
the audit fees collected are credited directly to the Consolidated Fund.

NAO makes no charge to Government Ministries/Departments.

Funds received from the Government are recognised in the period to which it relates. Audit
fees and other assurance income earned by NAO are recognised in the period in which the
audit has been completed.

(b) Leased assets

Leases where substantially all the risks and rewards of ownership remain with the lessor are
classified as operating leases. Payments made under operating leases are recognised in profit
or loss on a straight-line basis over the term of the lease.

(c) Foreign currency transactions

Transactions in foreign currencies are translated to Mauritian rupee at the exchange rate
ruling at the date of transaction. Monetary assets and liabilities denominated in foreign
currencies are translated at the exchange rate ruling at the balance sheet date and gains or
losses on translation are recognised in the income statement.

(d) Property, plant and equipment

           (i) Recognition and measurement

               Items of property, plant and equipment are measured at cost less accumulated
               depreciation and impairment losses. The cost of property, plant and
               equipment is determined by reference to its fair value.

               Cost includes expenditures that are directly attributable to the acquisition of
               the asset. The cost of self-constructed assets includes the cost of materials
               and direct labour,


                                            39
               any other costs directly attributable to bringing the asset to a working
               condition for its intended use, and the cost of dismantling and removing the
               items and restoring the site on which they are located.
               When parts of an item of property, plant and equipment have different useful
               lives, they are accounted for as separate items (major components) of
               property, plant and equipment.

           (ii) Subsequent costs

                Expenditure on Property, Plant and Equipment of more than Rs 5,000 is
                capitalised. Those costing Rs 5000 and less are accounted as recurrent
                expenditure but stated at a nominal value of Rs 10 to demonstrate their use
                and existence.

            (iii) Depreciation

                 Depreciation is recognised in the income statement on a straight-line basis
                 over the estimated useful lives of each part of an item of property, plant and
                 equipment. Additions during the year bear a due proportion of the annual
                 depreciation charge.

                 The annual depreciation rates used for the purpose are as follows:

                 Computer equipment                    -         5 years
                 Motor vehicles                        -         8 years
                 Furniture and fittings                -         10 years

                 Motor Vehicles have been revalued based on management estimates on 1 July
                 2006 as follows and depreciated over the estimated remaining life of 8 years:

                 FB 108       Rs 1,000,000
                 GM 8883      Rs 400,000

                 A full year depreciation is provided for assets purchased between 1 July and
                 31 December of each year and no depreciation provided for those purchased
                 from 1 January and 30 June.

                 Depreciation methods, useful lives and residual values are reviewed at each
                 reporting date.

                 Gains and losses on disposal of property, plant and equipment are determined
                 by reference to their written down value and are included in determining
                 operating profit.

(e) Intangible assets

Acquired computer software licenses are recognised as intangible assets. These are
capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. Costs associated with maintaining computer software are recognised as an
expense when incurred.

The carrying value of an intangible asset with a finite life is amortised on a straight line basis
over the shorter of the term of the licence and the useful economic life of 8 years.



                                             40
Computer software licences are capitalized as intangible fixed assets where expenditure of Rs
5,000 or more is incurred.
(f) Cash and cash equivalents

Cash includes cash on hand. NAO, not being a “self accounting” department, does not
operate a bank account. All payment vouchers are sent to the Accountant General, for
payment. The Accountant General is responsible for the accounting arrangements in all
Ministries and Departments and for the maintenance of the Government‟s Accounts.
However NAO keeps an Imprest Account to meet petty expenses.

(g) Financial instruments

Non-derivative financial instruments comprise trade and other receivables and trade and other
payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments
not at fair value through income statement, any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured as
described below.

A financial instrument is recognised if the NAO becomes a party to the contractual provisions of
the instrument. Financial assets are derecognised if the NAO‟s contractual rights to the cash
flows from the financial assets expire or if the NAO transfers the financial asset to another party
without retaining control or substantially all risks and rewards of the asset. Regular way
purchases and sales of financial assets are accounted for at trade date, i.e., the date that the office
commits itself to purchase or sell the asset. Financial liabilities are derecognised if the NAO‟s
obligations specified in the contract expire or are discharged or cancelled.

Debtors and other receivables

Debtors and other receivables are at fair value less impairment changes.

Impairment of a receivable is established when there is objective evidence that NAO will not
be able to collect amounts due according to the original terms of the receivable. Significant
financial difficulties of the debtor and default in payments are considered indicators that the
debt is impaired.

(h) Impairment

The carrying amounts of the NAO‟s assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, the
asset‟s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset exceeds its
recoverable amount. Impairment losses are recognised in the income statement in the period in
which the impairment is identified.

(i) Inventory

Consumable stocks are charged to the account in the year of purchase.

(j) Creditors and other payables

Creditors and other payables are measured at fair value.


                                               41
(k) Provision for accrued annual leave and long term service leave

Provision for employee benefits in the form of accrued leave and long term service leave
has been made for the estimated accrued entitlements of all employees on the basis of
their terms of employment.

(l) Employee leaves entitlement

Employees are allowed to bank sick leaves not taken at the end of each calendar year up to a
maximum of 90 days. Beyond this ceiling of 90 days, officers are refunded part of the annual
entitlement of sick leaves not taken at the end of every calendar year (i.e. December). As the
refund is based on the actual leave not taken at the end of the calendar year, employees‟
entitlement to sick leaves is recognised when they accrue to employees. A provision is made
for the estimated liability for bank sick leave.

Vacation leave, though cumulative, can only be cashed in extremely rare cases. As a result no
provision is made for the estimated liability for vacation leave.

Retirement benefits

The NAO is a pensionable office. As such officers of the NAO are entitled to a grant of
pension on their retirement from the public service, in accordance with the Pension Act. The
pension is non-contributory and all pensions of civil servants are paid out of the Consolidated
Fund on a pay-as-you-go basis. No specific pension fund is operated by Government and also
individual accounts are not kept. On this basis no provision is made for the estimated liability
for retirement benefits of employees.

(m) Civil service family protection scheme

This scheme is established by the Civil Service Family Protection Scheme Act. Under this Act
every public officer shall, from the date of his appointment, make a contribution to the Scheme
at the rate specified in the Schedule, until he attains the age of 60 or until he ceases to be a
public officer. On the death of the contributor, his surviving spouse and children are granted a
pension at the rate specified in the Act. The pension granted ceases on the death of the
surviving spouse or remarriage.

The payment of the pensions is calculated and paid as and when they accrue, from the
Consolidated Fund. Consequently no provision is made for the estimated liability for this
pension to employees.

(n) Income tax

No provision has been made in the financial statements for income tax on the basis that the
NAO is exempted.

(o) Judgements and estimates

The preparation of these financial statements requires judgements, estimations and
assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on
historical experience and other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.




                                             42
(p) Related parties

For the purposes of these financial statements, parties which are considered to be related to the
NAO are other government ministries/ departments and parastatal bodies if they have the
ability, directly or indirectly, to control the NAO or exercise significant influence over the
financial and operating decision making, or vice versa. Related parties may be individuals or
other entities.

Related party transactions were carried out at commercial terms and conditions.

(q) Standards, interpretations and amendments to published standards that are not yet
    effective for this reporting period.

Certain new standards, amendments and interpretations to existing standards have been
published that are mandatory for the accounting periods beginning on or after 01 January 2008
or later periods but which have not been early adopted. These new standards, amendments and
interpretations are either not relevant to the NAO‟s operations or are not expected to have a
material effect on the accounting policies and disclosures.


4. Determination of fair values

A number of accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and / or disclosure purposes based on the following methods. When applicable,
further information about the assumptions made in determining fair values is disclosed in the
notes specific to that asset or liability.


(i) Property, plant and equipment

The fair value of property, plant and equipment recognised is based on market values. The
market value of property is the estimated amount for which a property could be exchanged on
the date of valuation between a willing buyer and a willing seller in an arm‟s length
transaction after proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion. The market value of items of furniture, fittings and
equipment and motor vehicles is based on the market prices for similar items.

(ii) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash
flows, discounted at the market rate of interest at the reporting date.

(iii) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present
value of future principal and interest cash flows, discounted at the market rate of interest at the
reporting date.




                                             43
5. Property, plant and equipment

                                    Computer                   Motor              Furniture
                                   equipment                 vehicles           and fittings                 Total
                                   --------------            ----------         ---------------        -------------
                                              Rs                    Rs                      Rs                   Rs
       Cost/valuation
       At 1 July 2007                 6,112,369              1,400,000                  217,665           7,730,034
       Additions                      1,109,330                      -                   16,100           1,125,430
       Disposals                      (181,673)                      -                        -           (181,673)
                                       --------------        ---------------           -------------      ----------------
       At 30 June 2008                7,040,026              1,400,000                  233,765           8,673,791
                                       --------------        --------------           --------------       --------------
       Depreciation
       At 1 July 2007                 3,793,108                175,000                   29,744           3,997,852
       Charge for the year            1,127,799                175,000                   21,266           1,324,065
       Disposal                       (115,444)                      -                        -           (115,444)
                                       --------------       ----------------          --------------      ----------------
       At 30 June 2008                4,805,463                350,000                   51,010           5,206,473
                                       --------------       ----------------          --------------      ----------------
       Net book value
       At 30 June 2008                2,234,563              1,050,000                  182,755           3,467,318
                                       ========             =========                  ========           =========
       At 30 June 2007                2,319,261              1,225,000                  187,921           3,732,182
                                       ========             =========                  ========           =========


6. Intangible assets
                                                          Teammate                    IDEA                 Total

                                                        ---------------        ---------------         -------------
       Cost                                                           Rs                   Rs                       Rs
       At 1 July 2007                                        3,277,730                       -             3,277,730
       Additions                                                        -           368,370                  368,370
                                                             ------------         ------------             ------------
       At 30 June 2008                                       3,277,730              368,370                3,646,100
                                                             ------------         ------------             ------------
       Amortisation
       At 1 July 2007                                       1,229,149                       -              1,229,149
       Charge for the year                                    409,716                       -                409,716
                                                            ------------         ------------              ------------
       At 30 June 2008                                      1,638,865                       -              1,638,865
                                                            ------------         ------------              ------------
       Net Book Value
       At 30 June 2008                                      1,638,865               368,370                2,007,235
                                                           ========                 ========              ========
       At 30 June 2007                                      2,048,581                       -              2,048,581
                                                           ========                 ========              ========




                                              44
7. Long term receivables

                                                                     2008               2007
                                                                       Rs                 Rs

Bank sick leaves                                             11,596,828         10,666,283
Passage benefits                                              3,605,723          4,007,810
                                                           ---------------    ---------------
                                                             15,202,551         14,674,093
                                                           =========          =========

Long term receivables consist of amount payable to employees in respect of bank sick leaves
and passage benefits. These amounts are not provided for in the budget of NAO, but funds are
made available by government whenever employees decide to cash these benefits in the case
of passage benefits or at the time of retirement in the case of bank sick leaves.

8. Other receivables
                                                                    2008               2007
                                                                      Rs                 Rs

Bank sick leaves                                                313,171            309,880
Passage benefits                                                  85,738             62,899
Sundries                                                        376,873            441,919
                                                           ---------------    ---------------
                                                                775,782            814,698
                                                           =========          =========

9. Trade and other payables
                                                                    2008               2007
                                                                      Rs                 Rs

Traveling and transport                                         150,491            212,830
Overtime                                                          11,442             12,293
Office expenses and incidentials                                   4,622              4,953
Audit fee                                                         57,500             83,950
Rent                                                               4,800                    -
Telephone                                                         20,202             30,090
Electricity                                                       76,205             44,530
Publications                                                      11,180             15,930
Vehicles maintenance                                               3,545              2,860
Contribution to international organisation                        26,286             30,483
Annual subscription to professional bodies                        10,600              4,000
Sick leaves                                                     313,171            309,880
Passage benefits                                                  85,738             62,899
Audit fee payable to the Consolidated Funds                     500,000          1,025,000
                                                           ---------------    ---------------
                                                              1,275,782          1,839,698
                                                           =========          =========




                                          45
10. Revenue from Consolidated Fund
                                                                     2008                   2007
                                                                       Rs                     Rs

    Provision from estimates                                  57,200,000             53,650,000
    Contingencies Fund                                         4,325,010              1,390,000
    Sick leaves                                                2,448,718              2,218,405
    Passage benefits                                           1,592,216              1,505,784
    Consultancy fees                                             109,090                204,000
    Salary of supporting staff                                   709,735                688,935
    Commitments for the year                                     376,873                441,919
                                                           ----------------     ------------------
                                                                          -
                                                              66,761,642           60,099,043
                                                           ----------------     -----------------
                                                                          -
    Less
    Capital expenditure                                        1,493,800                 38,562
    Commitments of last year                                     441,919               326,943
    Provision returned to Contingency Fund                       105,182                 45,295
                                                           ----------------     -----------------
                                                                          -
                                                               2,040,901               410,800
                                                           ----------------     -----------------
                                                                          -
                                                              64,720,741          59,688,243
                                                            =========           ==========
                                                                         =
11. Staff costs
                                                                       2008                 2007
                                                                         Rs                   Rs

    Salaries and wages                                         42,048,422           40,684,824
    Travelling and transport                                     8,272,065           7,762,117
    Overtime                                                       116,101             149,185
    Staff welfare                                                    20,000              16,875
    Uniform                                                          13,950              18,275
    Refund of annual subscription to professional bodies           241,479             201,828
    Passage benefits                                             1,592,216           1,505,784
    Sick leaves                                                  2,448,718           2,218,405
                                                            -----------------     ---------------
                                                               54,752,971           52,557,293
                                                            -----------------     ---------------




                                           46
12. Administrative expenses
                                                          2008                2007
                                                          Rs                  Rs

       Fees to consultants                                109,090             204,000
       Training                                           115,764             129,640
       Rent and utilities                                 7,830,007           5,190,148
       IT expenses                                        469,550             36,980
       Office expenses                                    1,217,256           1,314,449
       Subscriptions to international organisations       226,103             255,733
       Loss on disposal of fixed assets                   66,229              -
       Depreciation                                       1,324,065           1,383,182
       Amortisation                                       409,716             409,716
                                                          --------------      --------------
                                                          11,767,780          8,923,848
                                                          ========            ========

13. Financial risk management

Overview

The NAO has exposure to the following risks from its use of financial instruments:

-   Credit risk
-   Liquidity risk
-   Market risk
-   Interest rate risk

This note presents information about the NAO‟s exposure to each of the above risks, the
NAO‟s objectives, policies and processes for measuring and managing risk, and the
management of capital.

The Director of Audit has overall responsibility for the establishment and oversight of the
NAO‟s risk management framework.

The risk management policies are established to identify and analyse the risks faced by
the NAO, to set appropriate risk limits and controls, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions.

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the
receivables from customers and deposits with banks.




                                              47
Liquidity risk

Liquidity risk is the risk that the NAO will not be able to meet its financial obligations as
they fall due. The approach to managing liquidity is to ensure, as far as possible, that it
will always have sufficient liquidity to meet its liabilities when due, under both normal
and stressed conditions, without incurring unacceptable losses or risking damage to the
NAO‟s reputation.

Typically the NAO ensures that it has sufficient cash on demand to meet expected
operational expenses for a period of 60 days, including the servicing of financial
obligations; this excludes the potential impact of extreme circumstances that cannot
reasonably be predicted, such as natural disasters.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates,
interest rates and equity prices will affect the NAO‟s income or the value of its holdings
of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimising the return.
Interest rate risk
The NAO adopts a policy of ensuring that most of its exposure to changes in interest rates
on borrowings is on a fixed rate basis.


14. Financial instruments and associated risks
Fair value

The carrying amounts of the NAO‟s financial assets and liabilities approximate their fair
values.

Associated risks

The NAO‟s activities expose it to various types of risk in the normal course of its business.

Credit risk

 Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The
maximum exposure to credit risk at the reporting date was:
                                                                        2008                2007
                                                                          Rs                  Rs
Long term receivables                                           15,202,551           14,674,093
Trade and other receivables                                       1,275,782            1,839,698
                                                             -----------------   ------------------
                                                                16,478,333           16,513,791
                                                             ==========           ==========




                                             48
Currency risk


NAO does not engage in foreign currency transactions, and hence is not exposed to
currency risks.

Interest rate risk

The NAO income and operating cash flows are substantially independent of changes in
market interest rates, and it has no exposure to interest rate risk, since it does not hold
interest bearing financial instruments

Capital risk management

The NAO‟S objectives when managing capital are to safeguard the ability to continue as
a going concern in order to provide returns and benefits for other stakeholders.




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