performance audit india

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FOR INTERNAL USE IN INDIAN AUDIT AND ACCOUNTS DEPARTMENT ONLY

MANUAL OF

PERFORMANCE AUDIT

(Revised Edition, 2009)

Issued by

Principal Accountant General (Civil & Commercial Audit), Kerala.

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P R E F AC E

With the revision of Auditing standards in 2002 and the issue of

“Performance Auditing Guidelines” by the Comptroller & Auditor General of

India (May 2004), the existing Manual of Efficiency cum Performance Audit

(1998) needed revision. “The Guidelines” contain comprehensive implementation

standards in relation to performance audit. This Manual, includes salient features

of ‘The Guidelines’, consisting of, inter-alia, strategic planning in pursuit of

realisation of goals and objectives, risk based planning and selection of subjects

and attainment of the ultimate objective of value addition to the public sector

programmes. It also contains orders/instructions issued by the Headquarters

Office and this office for the guidance of staff engaged in performance audit.

Nothing in this Manual shall be quoted as authority in correspondence

with outside authorities.

Suggestions for the improvement in the form and content of this Manual

are welcome. The Manual of Performance Audit will be maintained and updated

from time to time by the EPA(HQ) Section.

Thiruvananthapuram S.NAGALSAMY

Dated: 3.11.2009 Principal Accountant General (C&CA),Kerala,

Thiruvananthapuram




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C O N T E N T S

Chapter Subject Page

I General 1-10

II Procedure for Performance Audit 11-33

III Nature and drafting of Performance Audit Report 34 - 41

IV Miscellaneous 42 - 49

Annexures

Annexure I 50

Annexure II 52

Annexure III 54

Annexure IV 68

Annexure V 70




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CHAPTER 1

GENERAL

1.1 Introductory

SAI India has been carrying out performance audits, hitherto termed as

‘review’, or ‘efficiency-cum-performance audit,’ or ‘value for money audit’, over

the past 40 years relating to the receipts and expenditure of the Union and State

Governments, Government supported autonomous bodies and other public sector

undertakings on a variety of subjects.

1.2 Efficiency-cum-Performance Audit Section (EPA) was formed with effect

from 1st

January 1964, reorganizing the erstwhile Higher Audit Section. The

purpose of the reorganization was to enable the section to devote more attention to

Efficiency cum Performance audit of development schemes (Comptroller &

Auditor General’s letter No.2806-Admn 1/8 codes 61 Vol.II dated 18.11.1963 and

O.O.H.A/2-1.60-64/796 dated 1.1.1964).

1.3 The existing guidelines for performance auditing have been fine tuned in

the context by the ASOSAI performance Auditing Guidelines and INTOSAI

Exposure Draft Implementation Guidelines for performance Auditing Standards

and contemporary best practices. ‘Performance Auditing Guidelines-SAI

India’(May 2004) replace, en-block, section III, Chapter 8 of the Manual of

Standing Orders (Audit), in the context of performance auditing in SAI India. The

Salient features of these guidelines consists, inter-alia, of strategic planning in

pursuit of realization of strategic goals and objectives, risk based planning and

selection of subjects and attainment of the ultimate objective of value addition to

the public sector programmes. The guidelines also provide for a very high degree

of interaction with the auditees. Close interaction with auditees is essential for

realising value addition to the public sector programmes through performance

audits.

The instructions contained in Chapter 7 of Regulations on Audit and

Accounts issued by Comptroller and Auditor General in January 2008 may also be

referred to while doing Performance Audits.




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§ the economy, efficiency, effectiveness, equity and ethics of the means

used to implement a programme/ activity.

§ The intended and unintended, direct and indirect impacts of

programmes/ activities; for example, the environmental impact of

government activity etc, and

§ Compliance to applicable laws and regulations in the context of the

performance audit objectives.

Performance audit should not confine the objectives to ‘what has been

done’ but also examine ‘what has not been done’ to meet policy objectives.

Appendix-C of Performance Auditing Guidelines contains illustrative list of issues

in performance audit of public sector programmes.

Given the size, complexity and diversity of entity operations, it is

generally not practicable to attempt assessment of the overall performance of

departments or entities. Consequently, performance audits are usually directed

towards specific functions, activities, programmes or operations of the entity.

Performance audit findings are not a random assortment of various financial and

regularity audit findings but an assessment of either the whole or part of the

programme/subject/function/system.

(Paragraphs 1.30,1.31 and 1.32 - Performance Auditing Guidelines-SAI I ndia)

The Process

1.6 The first stage in performance auditing is strategic planning for

performance audits, which requires the development and maintenance of

information on the entity that will assist in identifying potential areas for

performance audit. Potential topics can then be analysed to form audit strategy

documents. The EPA (HQ) section should formulate the annual operational plans

in tune with the strategic plan.

Once a subject has been selected, performance audit is initiated by

developing a plan with the details for the conduct of the audit. The

implementation stage of the performance audit involves:

§ Development and execution of an audit programme

§ Collection and documentation of sufficient, relevant and reliable

evidence, including quantitative and qualitative analysis;




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§ Development of audit findings, conclusions and recommendations

and ;

§ Development of discussion papers/draft field audit reports and

confirmation of audit findings at exit conference.

Every performance audit culminates in the development of a draft

performance audit report containing audit findings and recommendations,

confirmation, acceptance and comments, if any, by the entity and approval of the

report within the SAI and presentation to Parliament/Legislature.

Throughout each stage of performance audit, the objective should be on

the production of a final report that is balanced and has value added impact. The

report writing process should be viewed as a continuous one of formulating,

testing and revising conclusions, if necessary. Therefore issues such as the

expected impact and value of the audit, the likely improvements, better value for

money and quality of expenditure resulting from the audit should be considered

throughout the audit.

(Paragraphs 1.50, 1.51, 1.52, 1.53 and1.54 - Performance Audit ing Guidel ines -

SAI India).

Mandate for Performance Audit

1.7 The mandate of SAI India for audit is derived from the constitution of

India, as established under the Comptroller & Auditor General’s (DPC) Act 1971.

The mandate of Comptroller & Auditor General of India for performance audit is

governed under Sections 13, 14, 15, 16, 17, 19 and 20 as the case may be, read

with Section 23 of this Act.

Annexure I contains instructions of the Government of India and Annexure

II contains instructions by Government of Kerala issued to all

Department/Autonomous Bodies/ PSUs to facilitate the conduct of performance

audit by Comptroller & Auditor General.

Duties and functions

1.8 The Performance Audit Wing comprises EPA HQ section and EPA parties

entrusted with the performance audits. The EPA parties each under the control of

an Audit Officer/Senior Audit Officer and the HQ section headed by an Audit




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Officer/Senior Audit Officer are under the charge of a Group Officer who is the

designated supervisory officer.

Supervision of performance audit involves ensuring that:

§ the members of the audit team have a clear and consistent

understanding of the audit plan;

§ the audit is carried out in accordance with the auditing standards and

practices of the SAI;

§ the audit plan and action steps specified in the plan are followed unless

a variation is authorised;

§ working papers contain evidence, adequately supporting all

conclusions recommendation and opinions;

§ the auditor achieves the stated audit objectives; and

§ the audit report includes the audit conclusions and recommendations as

appropriate.

1.9 Performance audit being more open to judgment and interpretations

requires close and careful supervision. Supervision procedures and system of

monitoring compliance for each assignment should be documented and got

approved by the Prl Accountant General as part of the detailed operational

guidelines.

(Paragraphs 7.3 to 7.4 – Performance Auditi ng Gui del ines-SAI India)

Structure of Supervision

1.10 Supervision to be exercised at vari ous levels is as detai led under :

§ by the group supervisory officer and the Prl Accountant General,

during planning of individual performance audits;

§ by the audit officer, during the course of field audit, further supervised by group supervisory officer; and

§ by the Prl Accountant General during review of periodic reports,

monitoring and interim appraisals at the close of the audit of a

particular phase or unit.

1.11 The key supervisory role for the performance audit planning,

implementation of the audit and reporting rests with the group supervisory officer,

who should be involved with all key elements of the performance audit process.




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The performance audit and the process documentation should demonstrate the

discharge of his/her supervisory role at each stage.

1.12 All audit staff and officers are individually and collectively responsible for

the quality of the audit reports. It is, however, imperative that the audit personnel

understand the most important role that they have to play. The Audit team is

primarily responsible for data collection. The Audit Officer and the Group

Supervisory Officer are responsible for data analysis. Audit findings, conclusions

and recommendations should be arrived at with the prior approval of the Prl

Accountant General.

(Paragraphs 7.5, 7.6 and 7.7.-Performance Auditing Guidel ines-SAI India)

Responsibil ity of the Supervisory Of f icer

1.13 Some of the more important responsibilities of the supervisory officers in

relation to performance audit are to ensure:

§ that the work plan is executed with integrity and care in relation to the

auditing standards;

§ that the implementation of audit is carried out in accordance with the

operational audit plan and all significant deviations, where necessary,

are made with prior authorisation of the Prl Accountant General.

§ adherence to the best practice contained in the performance Audit

Guidelines-SAI India.

§ documentation-both the performance audit documentation(working

papers) as well as the performance audit process documentation, which

demonstrate various actions and options considered and decided in the

course of implementation; and

§ the confidentiality and integrity of information obtained from the

entity, persons and other sources are maintained and that the factual

basis of information, description, analysis and recommendations are

accurate and they are fair, balanced and well founded, that they are

correctly communicated to the entity and the audit team is provided

oral and written guidance in conduct of the audit.




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Supervision by the Audit Of f icer of f ield audit party.

1.14 The day to day supervision and control of the performance audit

particularly the filed audit rest with the Audit Officer. Some of the more important

supervisory responsibilities of the audit officers are:

§ ensuring that the audit work is carried out in harmony with audit plan,

more particularly in tune with the audit objectives;

§ Identification of important issues in course of audit.

§ Ensuring that no significant matters in the context of the audit

objectives and evidence required, therefore, remain unresolved;

§ Evidence collected fulfils the criteria prescribed in the Auditing

standards;

§ the work performed and the results including the process of audit are

separately documented, first in support of audit findings, conclusions

and recommendations and the second in support of due diligence

exercised by the audit team; and above all

§ Ensuring that the objectives of audit are fully met.

Progress reporti ng

1.15 The Audit Officer and Group Supervisory Officer will be responsible for

reporting the progress of audit to the Prl Accountant General, at intervals as may

be provided in the detailed audit implementation plan or as ordered by the Prl

Accountant General. The progress report should contain all important information

relating to the progress of audit, extent of data collection, sources of data

collection, analysis of evidence, time spent in audit against the time allotted,

dialogue with entity, problems encountered in the course of audit and modification

applied to the audit plan, if any.

The Group Supervisory Officer and the Audit Officer should also furnish

assurance Memo, as prescribed by the Prl Accountant General, on completion of

audit of each unit or stage in the performance audits.

(Paragraphs 7.8 to 7.11 of performance Auditing Guidel ines-SAI India)

1.16 The Group Supervisory Officer and the Audit Officer should discuss with

the Prl Accountant General the progress of performance audit periodically and get

his guidance.




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Headquarters Section

1.17. EPA Wing comprises EPA (HQ) section and EPA Parties entrusted with

performance audit of selected topics. EPA Parties each under the control of an

Audit Officer and the HQrs section headed by an Audit Officer are under the

change of Sr. Deputy Accountant General (Commercial).

The following are the main items of work assigned to the EPA(HQ)

section:

(i) Collection of various basic data, essential for performance audit,

such as budget documents, plan reviews, study and evaluation

reports, copies of important rules and orders and other publications.

(ii) Selection of topics for performance audit and their allotment

among EPA parties.

(iii) Arrangement of preliminary studies of the schemes selected for

performance audit and collection of details called for by the

officers of the CAG/DGACR, PD(ESM) etc. relating to

performance audits.

(iv) Communication of various instructions and guidelines on

performance audit to the field parties from time to time.

(v) Coordination of the work by various EPA parties, monitoring the

progress of performance audit and tracing its pace to ensure

finalization of reports by the due dates fixed by the Prl Accountant

General/Audit implementation plan

(vi) Finalisation of performance audit reports submitted by EPA

parties, submission of the reports for approval by the Prl

Accountant General with such details as are required and

forwarding copies of the reports to the officers concerned

(vii) Furnishing copies of performance audit reports and such additional

details, as are required by Report(Civil) section to finalise draft

paragraphs based on the performance audit and supplying

performance audit files to Report(Civil)for reference when called

for.

(viii) Review of audit reports of the Union Government and other

States/UTs with a view to seeking guidance for selection and

conduct of performance audit.




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(ix) Maintenance of prescribed registers/records.

(x) Submission of tour programmes of EPA parties for the approval of

the Group Supervisory Officer.

(xi) Checking TA claims of field parties with approved tour

programmes, tour diaries, leave account, etc.

1.18. In order to watch the progress of work connected with performance audit

EPA(HQ) section should maintain a register showing the names of schemes

selected for performance audit, details of allotment among various parties, the

stage of work from time to time, details of performance audits finalised, details of

issue of copies of performance audit reports etc. This register should be submitted

to the Prl Accountant General on the 15th of every month.

The responsibility for keeping this Manual up-to-date rests with

EPA(HQ)/Section.

1.19. The general instructions in the Manual of the Outside Audit Department

applicable to OA(HQ) and OA Parties will apply mutatis mutandis to EPA(HQ)

and EPA parties.

Leakage of i nformation

1.20. Performance audit of a scheme may often involve probing into policies of

governments. It may happen that the facts brought to light may be such as will not

be in public interest to be divulged to any but officers competent to deal with them

finally. Leakage of information on such points will not only cause considerable

embarrassment to the Government but also result in possible damage to the

prestige of this office. It has therefore, to be ensured that cases dealt with by the

EPA wing are processed with utmost secrecy and tact notwithstanding the fact that

they may be eventually brought to the notice of the Legislature/Parliament

through the report of the C&AG. The instructions laid down for dealing with

secret documents should be observed by all the members of the staff in dealing

with such cases.

Data coll ected by Audi t

1.21. Data collected by Auditor either directly or through consultants or through

other sources engaged to carry out surveys etc. in connection with Performance

Audits should not be made available to any other individual or organisation.

(H eadquarters Off ice order No.391-Rep(C)/141-2006 dated 15 November 2006)




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CHAPTER II

PROCEDURE FOR PERFORMANCE AUDIT

2.1 With the attainment of independence, the role of Government as just a

“law and order” and “revenue collections” agency has enlarged and the activities

of the Government embrace multifarious functions and developmental

programmes covering almost all sectors of the State economy. This has

necessitated a reorientation of the approach of audit. Regularity and propriety

audits generally applied to individual transactions are not adequate for

assessments of the performance of a plan, project, programme, scheme or

organization in terms of its goals and objectives. The approach of audit has

therefore been reoriented. Comprehensive performance audit of the ongoing

projects, schemes, etc. in terms of their goals, objectives and programmes is

conducted to see how far the expected results have been achieved using the

available resources of men, material and money. Performance audit assesses and

evaluates the economy, efficiency and effectiveness of development schemes,

projects or organizations.

2.2 Performance audit is directed to examining the systems, procedures,

planning, implementation and operational performance of programmes, activities

etc. bringing out among other things, weaknesses and deficiencies as also lapses

of various types including those relating to individual transactions for appropriate

action. The audit envisages a comprehensive review of the project/scheme/activity

to ascertain:

(i) how far the physical and financial targets have been achieved.

(ii) how far the social and economic objectives have been realized.

(iii) whether the operations are conducted economically(iv) whether there are any cases of overpayment, loss, extravagance,

avoidable excess or infructous expenditure due to improper

planning, delay in completion of projects, overstaffing, over-

capitalization, unsound pricing policy, idling of assets etc. and

(v) Whether the utilization of the resources is in accordance with the

projected outlays and if not, the reasons therefor.




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2.3 It is neither practicable nor desirable to conduct performance audit on pre-

determined lines as schemes differ in their concepts, techniques of performance,

nature of objectives etc. Information available for analysis may also differ.

Selection of subj ects

2.4 The selection of the projects/schemes for performance audit should be

done with utmost care after making a preliminary study and taking into account

the various factors apart from the financial outlay involved. It is desirable that

schemes which are going on for atleast two to three years are taken up for

performance audit.

2.5 EPA(HQ)section should carryout an indepth exercise for performance

audit strategic planning. After setting the strategic goals and objectives, the data

on entity contained in budget papers, programme papers, plan documents, annual

reports, parliamentary debates and reports, media concerns, research and reports

of international agencies, follow up and leads from past audits etc. should be

analysed on the parameters of risk, materiality, significance, visibility, coverage

etc. to select subject for performance audits to be carried out over the strategic

plan period.

2.6 It is not always necessary to conduct performance audits of the entity or

the programme as a whole. EPA(HQ) section should select a mix of performance

audit subjects covering either the programme or activities of the entity

comprehensively and the subjects for which the scope and audit objectives are

confined only to significant aspects of the programmes or activities. The selection

of the components or parts of the programme may be guided by the materiality

and risk profiles. This will enable Audit to increase the coverage to large number

of relatively more important and contemporary issues, which may be expected to

enhance the perceived and actual value addition through performance audits. One

of the options could be to conduct performance audits of various components of a

large programme or entity in the form of series, covering a few aspects every year.

2.7 The subjects of performance audit may also be selected cutting across

various departments or entities. This will provide a platform for performance

audit on a theme or thrust area over a cross-section of entities, who are entrusted

with the responsibility for the programme, activity etc.




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2.8 While the amount of expenditure or revenue associated with a programme

or function is a significant consideration for selection of a subject, we may also

select topics for which there is either no budget or these are insignificant, or

whose materiality cannot be determined with reference to expenditure, receipts or

assets and liabilities only. Yet, the subject or the deficient performance could

affect a large or vulnerable section in a significant manner. Most of these issues

may relate to governance or good governance (examples: system of ensuring

quality control and assurance of quality of drugs, prevention of adulteration of

food and beverages, quality of information, communication and delivery of social

service benefits etc.) Selection of such subject will demonstrate the sensitivity of

audit to the governance issues and people-centric issues.

2.9 While performance audit is mainly a posteriori exercise, there is no bar to

conduct performance audit of programmes, concurrently or at the initial stages of

the implementation of the programmes, in cases where the risk and materiality are

perceived as being significant. Concurrent performance audit of long-term on-

going schemes should be undertaken at appropriate intervals.

2.10 Active co-operation of the concerned departments and their proper

appreciation of the performance audit undertaken is essential for a meaningful performance audit. As such pre-performance audit enquiries may be held with the

departmental authorities soliciting suggestions regarding areas and aspects to be

taken up for study and assistance in making available the records and data. The

suggestions regarding schemes to be taken up for performance audit may be

collected from Group Officers/Branch Officers of various sections also.

2.11 The following documents should also be referred to at the time of selection

of topics for performance audit.

(i) Performance Audit suggested by the Comptroller & Auditor

General, DGACR etc.

(ii) Portfolios maintained by Central Audit Sections and

EPA(HQ)Section.

(iii) Performance Audit, if any, suggested by the State Government/

P.A.C

(iv) Press cuttings(v) Performance Audit Reports of other states.




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(vi) Review Files on Administration reports of Departments

2.12 All the performance audits suggested by the CAG should be taken up and

number of other subjects may be suitably decided based on human resources

available.

(HQs Letter No.D3-R(s)/1988 No.REP(S)/183-86 dated 7.3.1988).

2.13 The list should include:

(a) Performance Audits suggested by the Comptroller & Auditor

General/DGACR etc.

(b) Performance Audits already approved by the Comptroller &

Auditor General but could not be completed and performance

audit already approved in advance and proposed for the current

year.

(c) Additional performance audits proposed for the year.

2.14. Performance Audit Topics proposed for inclusion in State Audit Report

have to be sent to CAG’s Office by such dates as intimated by HQrs. For this

purpose the process of selection of topics has to be started sufficiently early. For

getting suggestions from State Government, letters are issued by EPA Hqrs to

Government Secretaries of important departments like Finance and Planning and

Economic Affairs in September/October each year. Suggestions are also invited

from all Group Officers. Topics suitable for Performance audits are also identified

by EPA Hqrs from budget documents, administrative reports, plan documents etc.

From the list of topics available eight to ten topics are short listed for further

examination. While selecting these topics the following factors may also be

considered.

•

Topics which have been reviewed during the last five years may not beconsidered

• Schemes/Projects which are nearing completion may not be considered

• Schemes/Projects the implementation of which is the responsibility of

Local Self Government Institutions may not be considered.

• Priority should be given to schemes where performance audit can have

significant impact.




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Preliminary study of the short listed topics is to be conducted by deputing

EPA Parties. The Party may make an assessment of the topic by visiting a few

offices implementing the Project or Scheme and submit a report containing

information on the funding, organizational set-up, components of the scheme,

schedule of implementation, progress so far etc. and submit a Report, explaining

the suitably of the topics for performance audit.

From these topics so studied three or four topics are to be selected. The

number of topics would depend on the instructions received from HQrs. The final

selection would be made based on factors like financial materiality, significance,

visibility, past performance audits as well as regularity audits, estimated impact,

coverage, stage of programme development etc. The topics selected would be

submitted for approval of Prl. Accountant General and forwarded to CAG’s office

within the prescribed time.

On receipt of approval of HQrs letters would be sent to the Secretaries of

the Administrative Departments of Government which are responsible for

implementation of the scheme/ project intimating the decision to undertake the

performance audit. The Secretary would be requested to issue necessary directions

to the subordinate offices as contemplated in Government circulars No52/2006/Fin dated 13.November 2006. An entry meeting is to be held with the

Secretary of the implementing department to discuss the audit plan and

programme. Minutes of the meeting signed by Prl. Accountant General and the

Secretary should be kept for record

Pil ot study/preliminary survey

2.15. It is a good practice, particularly for relatively larger programmes, to

conduct a pilot study in one or two representative units of the entity to assist the

performance auditor in refining the risk analysis, audit objectives, audit criteria,

audit approach and audit test programme. In some cases, the result of pilot study

may necessitate more intense field audit and in others, the result may lead to either

defer the audit or abandon it for one or more reasons. Some illustrative findings

of the preliminary study could be: special skills and more time required for

finalization of the guidelines, higher risk perception, the subject being difficult




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from the auditability angle, sensitive subject from one or other points of view,

very low risk or materiality and negligible perceived impact of audit. The topics

proposed for Performance Audit are assigned to EPA Parties for pilot study. The

pilot study should be completed within one month. The Party may visit offices

connected with the implementation of the scheme/project, collect necessary

documents, hold discussion with the implementing officers so that an overall

idea on the scheme is obtained for preparation of detailed guidelines.

The objective of the Pilot study is to have a comprehensive insight into the

broad picture obtained at the time of initial selection to locate areas requiring in-

depth examination. The following list illustrates some of the documents which

will facilitate study of a scheme.

(1) Plan outline, Annual Plan budget and accounts of plan expenditure.

(2) Annual Budget documents

(3) Accounts

(4) Economic Review

(5) Administrative Reports of Departments implementing the scheme

(6) Project Reports

(7) Acts, Rules, Departmental Manuals, Reports and Brochures

(8) Any special published document pertaining to the scheme (issued

by Research Cells of University, Department etc.)

(9) Evaluation Reports by the Planning Board.

(10) Reviews of plan schemes published by the planning Board.

(11) Review by the R.B.I

(12) News paper cutting

(13) Important reported judicial decisions.

(14) Audit Reports of other states(to see whether similar scheme has

been covered)

(15) Audit Reports (Civil) of Kerala State for earlier years and Audit

Reports for Revenue Receipts/commercial undertakings.

(to see whether the scheme has been reviewed already in whole or

part)

(16) Reports of the Public Accounts Committee.

(17) Reports of the Committee on Public Undertakings




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(18) Inspection Reports of the Departments implementing the

programmes.

(19) Portfolios required to be maintained in Central Audit.

(20) Secretariat files

(21) Departmental files

2.16 While conducting performance audit of a programme, it is necessary to

understand the nature of the programme right from the stage it was conceived.

During the pilot study, it should be seen :

(i) Whether adequate survey was made before launching the project

(ii) Whether proper feasibility report was prepared

(iii) Whether there exists a detailed project report and details of

deviations, if any, available.

(vi) Whether the specification and performance of the various items of

equipments were properly matched

(vii) Whether there were proper procedures for inventory control and

material management, ie. whether an effective system of material

management existed

(viii) Whether contract systems have been laid down

(ix) Whether there were any operational problem and if so, how it was

got over

(x) Whether the project was functioning as it should be

(xi) What were the areas where it was being implemented and who were

the implementing agencies.

2.17 The results of the pilot study should be submitted to the Prl Accountant

General within the time allowed and his instructions obtained for the conduct of

detailed performance audit.

Perf ormance Audit -Implementation

2.18 The approach of audit should be systematic, methodical, logical and

rational. “The Performance Auditing Guidelines” (Comptroller and Auditor

General of India-May 2004) contain a frame work for the entire process of

performance auditing. They provide the best practices that the SAI must follow in

planning, implementation, reporting, follow up processes and quality assurance in




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all performance audits. They outline consistent principles, objectives, approach,

methodology, techniques and procedures for performance audits.

2.19 The phases of performance audit can be categorized as:

(i) Strategic planning for performance audit (Chapter 2 of the Guide

lines)

(ii) Initiating performance audit (Chapter 3)

(iii) Implementation (Chapter 4 & 5)

(iv) Reporting Process (Chapter 6)

(v) Supervision, review and quality control (Chapter7)

(vi) Follow up procedures (Chapter 8)

(vii) Quality assurance in performance audit (Chapter 9)2.20 While all steps and actions in performance audit process consisting of

planning, implementation, reporting and follow-up are important and must be

negotiated deftly, the most critical among them are outlined below with the

objective of at a glance recapturation (critical issues in performance audit-Chapter

10 –The Guidelines). The crucial issues are presented in two sections. The first

section contains the important considerations in the context of management of

performance audit and consists of steps that must be traversed and documented to

provide assurance of consistent high quality of audit. The second section consists

of the most crucial issues in relation to techniques and documentation that should

be applied to performance audits. It should be noted that the list is not exhaustive

and must be understood in the context of the detailed expositions in Chapters 2 to

9 of the Guidelines. The list of issues will assist the group supervisory officer, the

audit officer and the audit team to ensure the quality of audit, monitor and review

the crucial procedures in management and implementation of performance audits.

Section I: Audit Management Issues

2.21 Mandate for performance audit

§ Mandate under the Constitution of India and Comptroller & Auditor

General’s (DPC) Act 1971

§ Section of the Act under which a particular audit is covered, read with

Section 23 of the Act; and




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§ Mandate strengthened through convention-performance audits carried

out over the past 40 plus years on a variety of subjects, the reports on all

of them having been presented to the parliament and state legislature.

2.22 Strategic planning for performance audit.

§ Strategic planning for performance audit is not the same as the strategic

planning of SAI India, but should be consistent with it.

§ Set strategic goals and strategic objectives to be achieved through

performance audits;

§ Prepare performance audit strategic plan to fulfill the strategic goals and

objectives and document how the selected performance audits will

accomplish them.§ Prepare comprehensive directory of data sources, collect and update all

possible data that assist the strategic planning:

§ Ensure that the strategic goals and objectives are set in the context of

perceived risks and materiality of issues of financial, non financial or

governance nature;

§ Be alive to the major policy shifts affecting the governance and large

sections of public and select cutting-edge and sunrise subjects for

performance audit;

§ Prescience of the policy shifts and anticipation of the risks associated

with the policy shifts and emerging national or internal environment

demonstrate the cerebral capability of the institution; and

§ Plan performance audits in time to ensure value addition to the

management of the programmes.

2.23 Annual operation plan

§ Consists of the performance audits of the subjects, including the subjects

brought forward from the previous years that are to be implemented

during the year;

§ Provides an opportunity to review the plan in the light of new

developments and risk assessment since the approval of strategic plan;

and

§ Provides a basis for assessment of the performance of the Audit Offices

on annual basis and affords an opportunity to assess and re-assess the




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skill and knowledge required and those available in-house which forms a

basis for training programmes, engagement of consultants/experts and

outsourcing.

2.24 Performance audit implementation of plan

§ Gather all relevant data and documents to understand the entity and the

programme;

§ Intimate the entity about the intent to carry out the performance audit.

§ Facilitate/persuade formal presentation by the entity to explain the

various aspects of the programme;

§ Invite representatives of other departments/agencies which have a stake

in the programme by way of provision of funds, evaluation, etc;§ State the reasons for conducting the performance audit by setting out

audit objectives and sub-audit objectives;

§ Set audit objectives in the form of complete statement of questions, the

answer to which will satisfy the reasons for conducting the performance

audit;

§ Set audit objectives under distinct themes and sub-themes with reference

to programme objectives, further developed in the context of audit

concerns;

§ Specify the audit concerns of economy, efficiency and effectiveness that

the audit objectives and sub-audit objectives address individually or

severally as also the equity and ethics aspects, in so far as they affect one

or more of the primary concerns of economy, efficiency and

effectiveness;

§ Set quantitative and qualitative audit criteria against which the

performance will be tested to develop audit findings;

§ Set one or more criteria for each audit objective or sub-objective;

§ Identify tentatively the evidence/data required to be collected for testing

each criteria;

§ Identify sources of data and determine the methods of data collection;

§ Plan for procurement of expert advice or the services of consultant;

§ Assign duties and responsibilities; and




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§ Make a formal presentation to the entity of the audit plan, including the

audit objectives, criteria, evidence required and tentative location of

audits and invite the representatives of other concerned departments also.

2.25 Use of expert, consultant and outsourcing

§ Document transparently the assessment of knowledge and skill required

for each performance audit;

§ Examine and document how the required skill can be fully met in-house;

without compromising audit quality; and

§ Follow the procedure in vogue within the SAI in the matter of procedure

for procurement of services of expert/consultants.

2.26 Entity consultation, cooperation and response

§ Entity cooperation and response being the hallmark for the success of

performance audits, Prl Accountant General will be called upon to adopt

a persuasive approach to attain goal-matching;

§ Rather than quitting in the face of inadequate response, the objective will

be to continue making efforts with a view to making such cooperation a

routine in time to come;

§ The methods of persuading the entity for full cooperation is left to the judgment of Prl Accountant General;

§ The cooperation of the entity is not to be confused with agreement on all

issues. Recognition of possibility of difference in opinion and its

resolution is inherent in cooperation;

§ Entity cooperation and response should be obtained throughout the

performance audit process-from the intimation of the intent to the

recommendation and finally to the implementation of therecommendations and

§ Entity cooperation is to be secured through a series of transparent

measures:

♦ Sharing of the subject selected for performance audit in the

strategic plan with the Secretary;

♦ Intimation to the Secretary when the subject is taken up for

performance audit;

♦ Presentation by the entity for understanding the subject;




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§ A summary of the results of quality assurance reviews should be

published highlighting good practices for emulating and deficient

practices and procedures to be addressed for improvement.

2.30 Duties, responsibilities and accountability

§ The duties and responsibility of each member of the audit team, audit

officer and supervisory officer shall be stated clearly with reference to

compliance to the prescribed procedures, professional conduct, field

audit, evidence/data gathering, quality of data and documents,

documentation, dialogue with entity, audit test, audit findings,

recommendations, guidance to the team members, monitoring,

supervision, reporting and preparation of reports etc.§ A review may be made during the course of audit and upon conclusion

of the performance audit on the quality of fulfillment of the

responsibility by the performance audit team members and supervisors;

§ Assessment of the quality of audit and the performance of audit

personnel for each procedure, data collection, data analysis,

documentation and output during the performance audit cycle enhance

the quality of performance audit.

2.31 Process documentation

§ Process documentation of all management actions and judgments may be

retained throughout the audit to provide a trail for review of management

actions;

§ The process document should contain all considerations that do not form

part of the working papers for the performance audits in support of the

audit findings, conclusions and recommendations; and

§ The more important among the process documentation, which

demonstrates management actions, should be sent to SAI top

management with the draft performance audit report along with the

assurance memo in the format prescribed by SAI top management.

2.32 Impact evolution of performance audits

§ All performance audits will be conducted keeping the expected impact

on the programme in mind. The expected value addition- qualitatively




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and quantitatively - will be estimated before taking up the performance

audits;

§ Impact evaluation against the expected impact of each performance audit

and collectively for all performance audits conducted by the Prl

Accountant General shall be carried out annually; and

§ The impact evaluation will be carried out with reference to the

recommendations accepted and implemented.

Section II: Critical technical issues in performance audits

2.33 Fundamental principles

§ Performance audit is an assessment of efficiency and effectiveness of the

programmes, with due regard to economy;

§ Addresses the issues of inputs, processes, outputs (products) and

outcomes (impact);

§ Apart from the question whether the things are being done the right way,

it also addresses the question of whether the right things are being done,

in other words, it also focuses on what is not being done rather than only

on what is being done;

§ Performance audits also address the issues of equity and ethics, which

impacts one or more of the core concerns of economy, efficiency and

effectiveness and include, apart from other, integrity in preparation of

performance reports;

§ Distinction between regularity and performance audit should always be

kept in mind;

§ Performance audits are undertaken with the objective of improving

performance of public sector programmes and, therefore, in assessment

of the expected impact-qualitative and quantitative-on the programme

must be made before undertaking the audit;

§ The subjects selected for performance audits could be a programme,

segments of a programme-including the processes, procedures and

systems, an entity itself or parts of an entity. etc.;

§ The subjects of performance audits could be financial, non-financial or

public interest and governance issues.




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§ The subjects selected for performance audits should include cutting edge

issues that form the core of governance and sunrise issues in the light of

policy shifts;

§ Prescience of the risks to programmes or public interest demonstrates the

competence of the institutions;

§ Performance audits can be carried out posteriori or concurrently;

§ Performance audits use many techniques used in programme evaluation;

§ While the performance audit may and should assess the implementation

of the policy through one or more programmes, the scope of audit should

be limited to assessing the impact of the implementation of policy and

the policy per se should not be questioned;§ Performance audit conducted in time, when there is scope for remedial

measures is encouraged; and

§ Performance audits being knowledge-based exercise, in which

conclusions emerge from interpretations, call for special skill,

knowledge and competence of the audit personnel.

2.34 Audit Plan and programme - detailed guidelines for conduct of audit

§ The detailed audit implementation guidelines will consist of all relevantinformation and document required for complete understanding of the

entity, besides the audit objective, criteria, types and sources of evidence

to be gathered, audit test programme, delineation of duties and

responsibilities among team members and supervisors, progress reports

etc.;

§ The implementation guidelines should be such as to address all issues

designed in the prescribed structure; and

§ Unless authorised by general or special order, the performance audit

guidelines will be approved by SAI top management.

Each topic approved for Performance Audit would be assigned to one or

more EPA Parties. Usually the Party which did the pilot study would be assigned

the topic. Based on the Pilot study the Party is required to prepare detailed audit

implementation guidelines. The guidelines should inter alia specify the

manpower requirement, time frame of completion, coverage, sample selection




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method, size of sample, audit objectives, audit criteria etc. The time frame in the

guidelines should be such that the Report is finalized within the overall time

limit prescribed by CAG’s office for submission of Performance Audit Reports.

The guidelines approved by Prl AG are forwarded to CAG’s Office for approval.

Changes suggested on comments of HQrs on the guidelines should also be

considered while conducting performance audit.

For All India Performance Audits the detailed guidelines are received from

DGACR, PD(ESM), PD(SD) etc. and the audit is to be carried out strictly as per

the guidelines and adhering to the prescribed time schedule.

2.35 Audit objectives

§ Audit objectives will be the focus of field audit and data collection;

§ All audit objectives and sub-objectives will address one or more of the

core audit concerns of economy, efficiency and effectiveness and the

concerns addressed by each audit objective and sub-objective will be

identified against each of them;

§ The evidence testing will also revolve around the audit objectives; and

§ Audit objectives need not be limited to testing of the programme

objectives. The audit objectives go much beyond the programme

objectives to test the programme for economy, efficiency and

effectiveness. (Annexure III)

2.36 Audit criteria

§ Audit criteria are performance measures against which the evidence is

tested for arriving at the audit findings and conclusions;

§ For each audit objective or sub-objective there must be at least one

criterion and testing on more than one criteria against the same audit

objective enhances the acceptability of audit findings and makes them

convincing;

§ Audit criteria should be acceptable to the entity;

§ In the event of disagreement in a few cases, it may be a good practice to

request the entity to suggest alternative criteria;

§ All possible sources of criteria should be consulted to arrive at the best

fit;




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§ Criteria developed by or in consultation with the experts of repute

assume enhanced credibility and are easily acceptable;

§ Institutional consultancy for criteria and for other consultancy or advice

in the performance audits have better credibility and acceptance;

§ Performance criteria prescribed in the programme or later developed by

the entity should be tested for appropriateness and unless otherwise

established that they may hide underperformance or over-pitch the

performance, these should be adopted in performance audits;

§ Performance audits need not confine to the entity established criteria, but

should go beyond to establish more criteria to provide tests for all audit

objectives and sub-objectives; and

2.37 Audit evidence for testing against criteria

§ All data and evidence to be gathered will, as far as possible, be

predetermined with reference to each criterion, which are intrinsically

lined to each audit objective or the sub-objective;

§ The sources and location of data/audit evidence and method of gathering

them shall be determined in the audit implementation plan;

§ Evidence in support of each audit finding will be transparently tested on

the standards of relevance, competence and sufficiency (reasonableness)

in the working papers;

§ The secondary evidence viz. surveys, photographs, physical inspection,

etc. should be corroborative and should not form the only basis of audit

finding, unless accepted by the entity;

§ Prl Accountants General are encouraged to identify secondary/

corroborative sources of evidence and establish means for gathering

them with the approval of the SAI top management; and

§ They may also determine approach and methodology for physical

verification in programmes in which asset verification and beneficiary

survey are crucial inputs to establish the actual delivery of the output and

the quality of output/delivery. While nothing prevents physical

verification by audit team, the question of credibility and acceptance

should also be taken into account, since physical verification by audit

team may, sometimes, be contested later as incorrect. Some of the




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methods that could be considered are joint physical inspection with

attestation from both sides, survey by reputed agencies etc.

2.38 Sampling

§ The audit findings should be based on objective sampling and thesampling techniques used should be disclosed;

§ As far as possible, statistical sampling techniques should be used;

§ Assistance of statistical adviser in the SAI headquarters may be obtained

for statistical sampling and

§ Adequate sample size should be selected to be able to generalize the

audit findings and be able to meet the standards of sufficiency.

2.39 Audit findings

§ Audit findings should be developed on the basis of audit tests carried out

on the sample;

§ Audit findings should be in the context of the audit objectives and

criteria.

§ The causes of underperformance should be determined to be able to

recommend remedial measures; and

§ All evidence used for audit findings should be tested transparently or thestandards of relevance, competence and sufficiency and the basis on

which the satisfaction of fulfilling the standards is established, should be

documented in the working papers.

§ Audit findings should be discussed with the Secretary of the

implementing department of State Government during the exit meeting.

For this purpose a copy of the draft report will be forwarded to the

Secretary from EPA (HQ)rs. The minutes of the meeting signed by thePrl. Accountant General and the Secretary should be kept for record.

2.40 Recommendations and follow-up procedure

§ All audit reports must contain recommendations arising out of audit

findings and the cause of audit findings;

§ As the performance audit revolves around the audit objectives, the

follow-up procedure is built around the recommendations and the impact

of performance audit is measured on the basis of implementation of the

recommendations; and




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§ Follow up procedure is conducted with reference to the information on

the implementation of the recommendations and the quality of

implementation of recommendations through a more detailed follow up

audit.

2.41 Supplementary Guidelines and practice Guide Series

In addition to the performance Auditing Guidelines, HQ have issued

supplementary Guidelines on Evidence Gathering, Analysis and Evaluation

Techniques and five Practice Guides for guidance during performance audit.

Salient features are given below. For details refer to the respective publications.

A. Supplementary Guideline I on Evidence Gathering, Analysis and

Evaluation Techniques

After audit objectives and criteria are finalised following steps are taken to

determine the appropriate data collection technique to be used.

a. Determining the data that will answer the audit objectives/questions

b. Identifying appropriate sources/types of data which are cost effective

and defensible

c. Deciding on suitable methods for collection of data

d. Analysis of data collected

Some methods other than those given in Appendix D of Performance

Auditing Guidelines commonly used for evidence gathering are given below.

a. Observation /photos

b. Searching the database of literature on the subjects

c. Programme/entity database and files

d. questionnaires

e. expert opinionf. using results of other studies and audits

Evidence evaluation and analysis

Evidence may be evaluated on the basis of its persuasiveness, meaning the

confidence it offers the auditors in reaching conclusions with respect to audit

objective.

Following provide a structure for measuring persuasiveness

i. Relevance




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ii. Objectivity

iii. Documentation

iv. Externality

v. Sample size

vi. Sampling method

vii. Corroboration

viii. Timeliness

ix. Authoritativeness

x. Directness

xi. Adequacy of controls

B.

Practice Guide Series I Audit of Procurement

Main points to be looked into while conducting performance audit of

procurement are:

• Policy guidelines and documentation

• Record management and documentation of purchase /procurement

• Requirement /provisioning

• Rate analysis/estimated rates

• Inviting tenders, tender documents, correction/changes in tender

documents, receipt and opening of tenders, system transparency.

• Post tender negotiations, advance payment, performance guarantee

etc.

• contract management – price variations, delivering, taxes and duties,

warranty, dispute reconciliation.

• post contract management – monitoring, inspection, user readiness,

dilution of contract terms

C. Practice Guide Series 2 Audit of Poverty Al leviati on Programmes

Important points to be examined during the performance audit of Poverty

Alleviation programmes (PAP) are:

• Proper formulation of programme

• Targeted beneficiaries correctly identified

• Financial planning and funds management at various levels• Works - generation of employment and creation of durable assets




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• Execution of work – economic, efficient and effective

• Non exploitative and dignified working conditions

• Utilization of funds earmarked for weaker sections

•

Payment of wages and supply of food grains• Generation of income through micro enterprise development

• Identification of site for dwelling

• Flow of credit and subsidy

• Drinking water and sanitary schemes – implementation

• Monitoring at various levels

D. Practice Guide Series 3 Audi t of Contr act Management

Following main points are to be covered during the performance audit of

Contract Management.

• System for project appraisal

• System of selection and classification of contractors

• Tender procedures

• System of review of conditions of contracts and tender documents

• Periodical financial reporting covering work done, payments made etc.

• System of on site control regulating valuations of work for interim

payment

• System for examining and controlling price fluctuations and variations.

E. Practice Guide Series 4 Planning Individual Performance audits

In addition to the guidelines issued in Performance Auditing Guidelines,

the practice guide discusses in detail various stage in planning individual

performance audits. Main points are:

Audit objective

Limit the number of audit objective to five at the maximum and sub

objective to five. A question should not be broken down into more than five sub

questions. Each question should address an independent area. Taken together all

the questions should satisfy the audit objective completely.

Audit criteri a should be

specificMeasurable / quantitative




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Agreed by entity

Free from auditor’s bias

Clear, understandable and comparable.

F. Practice Guide Series 5 - Outsourcing : Use of consultants

Following sequences in the process of appointing consultants are

prescribed:

a) Determining the need for a consultant

b) Identifying and engaging the consultant

c) Monitoring the work of the consultant

d) Evaluation of final out put

Determining the need for a consul tant

Services of consultants can be used for advice and guidance on a specific

issue before audit or for carrying out specified tasks on behalf of Audit.

I denti fying and engaging consul tants

GFR and Manual of Policies and Procedure of Employment of Consultants

issued by GOI in August 2006 are applicable which cover the use of -

Individual consultants

Consulting firms

Universities and research organizations

Government agencies and

Non – Governmental organizations

Engagement of consultant is normally done in two stages:

a) by inviting expressions of interest and

b) by asking the short listed consultants to submit technical and financial

proposals.

Monitori ng the work of consul tants can be done by

a) Appointing a nodal officer

b) Through a work plan to be approved before commencing work

c) Consultants interaction with auditee

Evaluation of work done by the consultant

Final compliance by the consultant with contract engagement would be

carried out using commonly applicable bench marks of completeness of work,

availability of inputs when required, reliability, usability, accuracy, timeliness,




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flexibility and responsiveness in reaching departmental requirements, maintenance

of confidentiality and overall satisfaction.

CHAPTER - III

NATURE AND DRAFTING OF PERFORMANCE AUDIT REPORT

3.1 Nature and drafting of Performance Audit Report

Chapter 6 of the Guidelines deals with the reporting process from

discussion papers to draft performance audit report, forwarding of the draft report

to the entity for confirmation, acceptance and comments, if any, procedure for

approval of performance audit report within the SAI and presentation to the

Parliament, Legislature etc. Thus the reporting process begins with discussion

papers, navigates through the stages of audit observation, field audit report and

ultimately to the draft performance audit report and the final report. While every

performance audit is to culminate in development of a report containing the audit

findings and recommendations, report writing is to be viewed by the performance

audit teams as a continuous process.

3.2 The performance audit teams should keep the following in mind during

audit as well as at the time of finalising the report.

Ø Audit comments should be based directly on the information contained in

departmental records so that the department may not contest later. When it

is not directly evidenced, audit enquiries should be issued and the facts and

figures got accepted by the departmental officers. The field officers

should take action to get timely replies to the audit enquires. In case the

replies are not received till the finalization, it should be mentioned in the

report that information called for by audit (period) has not been received

from the department till then (period). The data collected or obtained from

departmental offices and unit offices should be consolidated.

Ø The emphasis should be on quality than on lengthy narration. More stress

should be on analysis of the strength and weakness of the organisation.

The performance audit should encompass economy, efficiency and

effectiveness of the project/scheme. The report should be so balanced that

among other things, points from financial audit as well as achievements ofsocial objectives/aspects of the scheme are highlighted.




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Ø There may be some plus points in favour of the project authority. The

positive aspects noticed in the performance audit shall also appropriately

be included. However, serious irregularities like non-realisation of social

and economic objectives, non-observance of time schedule and cost

estimates, over capitalisation, large overhead expenditure, over-staffing,

idle personnel, work backlogs, delay in construction of projects resulting

in cost overrun, absence of trained manpower, plants operating below rated

capacity, excessive inventories, absence of sound pricing policy,

unauthorized occupation of government lands, idle plant and equipment,

leakage of revenue, overpayments, loss due to pilferages or non-

observance of proper procedures, improper, avoidable or infructuous

expenditure etc. should be included in the Report.

Ø For expenditure and receipts figures, the accounts figures should generally

be adopted. The departmental figures should also be mentioned, specifying

the reasons for the differences, if analysed or pointing out the non-

reconciliation of the figures by the department. When figures are not

ascertainable from accounts and departmental figures are adopted, the fact

should be mentioned in the report.

Ø In the case of centrally assisted schemes, the pattern of central assistance,

conditions attached, actual amount of central assistance received,

expenditure incurred and position of excess/shortfall in respect of central

assistance should also be mentioned. When a scheme is implemented in

more than one sector, such as under plan with central assistance and under

non-plan with state finance alone, the audit observations may be so

grouped that it is easy to identify, to which sector they relate.

Ø Information regarding the number of units test checked and out of how

many, particular defects or weaknesses that have been noticed is to be

furnished so that the comment in the performance audit report is

appreciated by the PAC in its proper perspective.

Ø The report should contain significant evidence of audit. As such leaning

heavily on departmental reports and just copying from them should be

avoided. Even when extracts from departmental records are quoted, it




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should be done after analysis and audit observations on the inaccuracies in

the statement, if any, should be mentioned.

Ø The audit team should make themselves conversant with the observations

of HQ office on performance audit reports in the past and draft the reports

on the performance audit conducted by them in such a way that similar

deficiencies do not occur in the report.

Ø The presentation and language of the performance audit report should

abide by the “style guide” of SAI India. The essence of the style guide is

to adopt uniform format and language, render the report simple and reader

friendly as well, as interesting. Accountability-centered, third person

active voice, narration by designation enhances the readability and interest

of the reader and induces objective response from the entity. It should be

followed uniformly. (Para 6.18 The Guidel ines)

3.3 Characteristics of good report (Para 6.4 –Guidelines)

The following points need to be emphasized in regard to performance

audit reports:

v The audit report should be complete i.e. all pertinent information

required to satisfy the audit objective, including the information relating

to the scope, criteria, evidence, conclusions and recommendations should

be available in the report;

v The obligation of the audit report to be accurate implies that the evidence

prescribed is true and the conclusions are correctly portrayed;

v The objectivity of audit report is convincing if the results of audit are

presented persuasively and the conclusions and recommendations

followed logically from the facts presented;

v The report should be clear, which signifies that it should be easy to read

and understand

v The report should be concise, which requires that the report should be of

optimum size, no longer than necessary to convey the audit opinion and

conclusions.

v Balanced reporting should be adopted in the presentation of reports.

Audit findings and conclusions should not only be based on relevant and




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sufficient evidence, but also presented in an objective, fair and non-

partisan manner. For this,

o apart from deficiencies / short comings/ lapses, the positive

contribution of audited entities should also be mentioned in the

reports wherever possible.

o use of the terms “tenable” and “irregular” may be discontinued and

instead suitable expressions may be used such as

(i) the reply does not explain why….

Or

(ii) the reply is not in consonance with ….

Or

(iii) the reply is contrary to ….

Or

(iv) the reply does not correctly interpret etc.

The rebuttals should always be in the form of a reasoned argument.

v Consistency of the report is secured by ensuring that it does not contain

contradictory findings or conclusions in similar context or the

conclusions on the same segment in different sections or parts of the

report are not incompatible.

v The report is constructive if it manifests a remedial approach rather than

a critical approach and includes appropriate recommendations.

v The report adds value to the entity, if it is timely.

v The acquiescence to the report, including the audit conclusions and

recommendations grows with display of entity cooperation, entity

responses, audit methodology, audit criteria and evidence, etc. within the

performance audit reports.

3.4 Structure of the report (Para 6.29 – The Guidelines)

The performance audit report should be presented as per the following

structure:

♦ Title : the subject of the performance audit.

♦ Highlights : major audit findings either in the sequence of their

materiality or in the same sequence as the audit objectives and sub

objectives;




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♦ Recommendations : While recommendations may be included at

various places in the report in different contexts, all major

recommendations should be presented together, immediately after the

highlights, preferably, in a box or highlighted print. Ideally all matters

of facts/figures/evidence, audit findings and conclusions included in

the report should have been accepted by the entity by the time the final

report is prepared. Thus, in so far as the entity and the SAI are

concerned, the action would revolve around implementation of the

recommendations and follow-up respectively. It would, therefore, be

desirable to gather all recommendations together.

♦ Introduction : consisting of a brief description of the subject of study,

information on programme/activity/institution, its objectives, inputs,

implementation structure, expected outputs and outcome etc. The

introduction should be brief, yet sufficient to enable the reader

understand the context of the programme;

♦ Scope of audi t: Scope of performance audit in terms of the period of

the programme covered in audit and segments of the programme

audited should be set out precisely;

♦ Audit objectives : are the pivots of the performance audit, which set out

the reason for undertaking the audit. The entire exercise of

performance audit is built around the audit objectives. These should,

therefore, be stated in simple and clear terms. It is useful to set out the

audit objectives and sub-objectives within each audit objective in the

form of complete statement/question;

♦ Audit criteri a : to arrive at the audit findings and conclusions with

reference to each audit objective and sub-objective which should be

stated with appropriate explanations;

♦ Audit methodology : used for data collection/evidence gathering and

testing may be stated in brief. This adds to the acceptability of the

audit findings and forms a statement for transparency of the audit

procedure;

♦ Audit findings : in respect of economy, efficiency and effectiveness

should be presented in a logical manner, preferably in the same order




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as the statement of the audit objectives. Conclusions,

recommendations and impact (outcome) analysis: with reference to

each audit objective should be stated, preferably immediately

following the audit findings. The completeness of the report enhances

if recommendation(s) with respect to each conclusion is/are kept

together with the conclusions. Distinctiveness between the

conclusions and recommendations may be achieved through formatting

techniques;

♦ Lessons learnt and sensitivity to error signals : under this caption

significant audit findings on sensitivity and effectiveness of the

internal control system to ensure that the management recognized

major causes of underperformance brought out in internal or external

studies/reports, including past audit reports and the remedial measures

may be included. Also the audit findings on the sensitivity of the

management to various error signals generated through internal

inspections, evaluations, media reports, complaints, study by interest

groups etc. and effectiveness of the action taken may also be included.

In both cases, the audit findings that could have been avoided with

effective lessons learnt and error signal response system may be

highlighted.

♦ Acknowledgement : The co-operation, acceptance of the

criteria/findings and recommendations by the entity may be

acknowledged briefly. In case the co-operation or response was not

forthcoming at any stage it may be indicated if it has resulted in any

limitation along with its implication and the special efforts made by the

Prl. Accountant General to seek co-operation or response. Care should

be taken to state them as a matter of fact rather than giving an

impression to convey any accusation;

♦ Graph, charts, diagrams, photographs etc.: Prl. Accountants General

are encouraged to illustrate the audit findings with the use of graphs

and charts and improve the visibility of the analysis and findings.

Photographs can be used as evidence where they are able to

corroborate evidence.




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♦ Glossary of terms : explaining all technical and uncommon terms used

in the report that need to be explained.

♦ References or bibliography : containing reference to all published

material utilized in developing the report.

A list of key documents should be attached to the report and the serial

number of the key documents in the list should be indicated against the relevant

observation in the report. Duplicate copies of key documents should be arranged

in serial order in a separate folder.

The report drafted by the audit officer of the EPA party should be

submitted to the group supervisory officer and after his/her approval, it should be

forwarded to the EPA(HQ) for submission to the Prl Accountant General through

Report (Civil) section.

The Reports, Questionnaires, Checklist and other materials relating to

Kerala and Union Territory of Lakshadweep intended for Union Audit Reports are

sent directly by EPA HQrs to the concerned audit wing at HQrs. Simultaneously

copies of the Reports are sent to the Secretary of the implementing State

Government Department (State Report) and the Administrative of the Union

Territory of Lakshadweep (UT Report).

3.5 Forwarding of the draft report (Check list at Annexure IV)

After the report is approved by the Prl Accountant General, it should be

sent to the Secretary to the Government department with a demi-official

forwarding letter and with a copy to the Secretary to Government, Finance

Department. It should contain the following:

o Subject of the performance audit and reference to previous dialogue;

o Gist of major audit findings and recommendations along with the risk

and materiality of the issues;

o Attention to the orders of the Government issued on the

recommendation of the parliamentary/ legislature committee, setting

time limit for formal response.

o Invitation to formal discussion and presentation of the audit findings and

conclusions; and

o The expected value additions to the programme management, if the

recommendations are implemented.




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Simultaneously, a copy of the draft performance audit report along with a

copy of forwarding letter to the secretary to the Government should be submitted

to the HQ office.

• An assurance memo in the prescribed form should be appended to draft

review report.

• While sending the draft reviews and long paragraph to headquarters,

matrix identity, money value and matrix value are to be indicated. Details

of instructions are given in Annexure V.

3.6 On receipt of the response of the entity and observations of the SAI top

management, we may incorporate the modifications, warranted by them and

forward the draft report along with a response sheet for further action at head

quarters.

3.7 Publication

§ Stand-alone volume for each performance audit report;

§ Deviation from this with authorization; and

§ Performance audit reports prepared and presented during all sessions of

Legislature round the year as per the pre-determined schedule.




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CHAPTER- IV

MISCELLANEOUS

4.1 Period to be covered in reviews relating to autonomous bodies

The duties of audit department in respect of audit of accounts of

autonomous bodies are limited to the period of entrustment of audit. Therefore,

any performance audit attempted in respect of an autonomous body is to be

confined to this period and it would not be advisable to examine the transactions

or review the operations which fall outside this period. However, such

clarifications and statistical information pertaining to past period as may be

necessary to take a proper view of the transactions and operations audited can be

obtained by audit and taken into account (Comptroller & Auditor General of

India's circular No.3 AuditII/6-87 No.63 Audit II/6-87 dated 28.1.1987-File

EPA/HQ/1/4-40/86-87).

4.2 Public Sector Programmes

The performance audit team should keep in view and cover the following

important issues in the performance audit of public sector programmes.

Mandate • Has the management obtained the approval of the

competent authority (i.e. Legislature) for the

programme

Objectives • Has the management developed clear objectives?

• Have the programme objectives been appropriately

determined to fulfill the policy objectives?

• Are the objectives specifi

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