Auditing in the Public Sector

Auditing in the Public Sector

Good governance demand accountability and transparency in the management of public resources. The diverse nature and size of government expenditure make public sector auditing necessary and indispensable. Auditing is the examination of the financial statements of an organization in order to express independent and objective opinion on whether the statements give a true and fair view of the company. In auditing, the auditor must be free from any interference, or bias that can impair the opinion given to the stakeholders. With the increased demand by the public to make their government and specifically the executive answerable for their financial use, the office of the auditor general plays an immense role Rittenberg, Johnstone and Gramling 266.

The government and its bodies have the core mandate of providing services to the citizens and improving the welfare of the state. Failure to manage resources successfully and transparency will result in loss of confidence in the leadership and its management Pomeranz 75()

DISCUSION

The audit of the public sector encompasses the auditing of income and expenditure together with the need to ensure taxpayers money is properly accounted for. The management of public sector resources has to be made in accordance to the set legislations and approval. Government expenditure and income are approved by the legislative arm of the government before the actual implementation by the executive Marr 96.

In the execution of the budget, the government departments and relevant officers have the obligation of ensuring that the effective laws are followed Weirich and Pearson 83.

The complex nature of government controls and management is also aimed at ensuring separation of duties and ensuring better management of resources. As opposed to the private organizations where auditing has been conducted successfully and continuously over the years to boost the confidence of the investors, the public sector auditing has been faces by innumerable challenges and difficulties. It is only the increasing demand for good governance that governments have tried to become accountable to the taxpayers. Independent audit offices have been established apart from the internal audit departments that ensures proper and effective internal controls on the operations of the government departments.

The audit of public sector differs from that of the private sector in two major aspects. First, the public sector auditing has a wide range of users with different needs. The use of audited reports of public enterprises therefore has vaster use than that of the private sector. Secondly, the government has the obligation of rendering accounts to all the nationals. The auditors of public enterprises need to have a wider understanding of these diverse needs and should therefore aim at considering their interests Marr 103.

The demand for the audit reports by the large number of users requires the auditors to divulge their findings to the public if efficiency and transparency has to be improved. The challenge that the auditors face in making their report public is the nature of the persons to who the report is intended for. Most of the citizens lack the rudimental financial understanding that will enable them comprehend and utilize the report content appropriately. The reports should therefore be comprehensive and made in a manner that is understandable by the public. The government therefore needs to annex the auditor's report on the financial statements for public access. This would improve the openness of the government and boost the confidence of the public on their politicians Berto-k 25()

In executing their mandate, auditors must ensure that they have much knowledge on the way governments operate. The government operations are made complex by the fact that there are many procedures that have to be followed. External and internal auditors must therefore master and know how the government operations are executed. The problem with the management of public finances has not been based on the fact that there are no good controls but because the set procedures have always been breached. Most governments especially of the developing and the underdeveloped countries have failed to show accountability to the taxpayers. Political dictatorship has affected the quality of public sector auditing.

The public sector auditors perform several functions. The objective of auditing public finances is to improve on the management of the public finances. Auditors therefore have the core function of ensuring that public finances have been used in the best way possible. The auditors must therefore determine that only the sanctioned expenditures have been made and that there is no extra money used in other manner. The opinion of the auditors should reflect an understanding of the budget approval by the legislature. In doing so, all the documents showing the expenditures should be availed with proper authorization. Auditors also have the function of ensuring that the all the public income derived from all the government revenue sources like taxation, donation and on the provision of the services are incorporated in the government statements.

Secondly, auditors have the role of advising the government and the public bodies on how to make their procedures and processes more affective. The auditors should ensure that the internal controls that are instituted by the governments are effective and applied throughout the financial year Grills 146()

Auditors must conduct the rest of effectiveness on the controls to ensure that they promote separation of roles and are in tandem with the international auditing standards. Good controls should be able to detect flaws and reveal losses that are likely to cause governments losses of public expenditures Grills 146.

Most importantly, the auditors of public sector should ensure that the set procedures and controls were put into place throughout the year. This has been the main challenge with the management of public finances where the top government officials have always gone against the rules for their own selfish interests.

Moreover, auditors of the public sector must ensure that there is value for money for the government expenditure. Value for money auditing requires that the resources are efficiently, effectively and economically used in undertaking public projects Bourn 124.

The costs incurred should be minimized as possible and the value maximized at the same time. Audit procedures that are used should be capable of detecting that resources are used optimally and that the benefits of such expenditures infiltrate to the taxpayers i.e. The expenses should not favor only a province of citizens. The government must therefore outsource at the cheapest sources and give contracts to contractors who charge the lowest cost without compromising the quality of the services Bourn 124.

In developing nations, value for money audits reveals that the government spends large amount of money on projects that are not felt by the public. In some cases, the projects undertaken are also of very low quality therefore becoming obsolete in short periods than expected. Auditors should therefore advice the executive on how to ensure that the value for government expenditure is realized.

In addition, the auditors have the duty of offering necessary information to parliament for making the executive accountable. For instance, the office of the auditor general in Australia was formed mainly to assist the legislature in monitoring public expenditures and ensuring better utilization of the public finances. Parliament therefore relies on the auditor's report in grilling public officers to make them accountable for their work. Auditors should remain committed to providing relevant and accurate reports to the legislature as a way of ensuring parliaments functions are achieved in a smooth and good way Grills 146.

Even though the auditors have the responsibility of making their report public for the relevant departments to utilize, the office of the auditor general must remain independent and objective in their mandate. These therefore mean that other interested parties must not use the auditors in realizing their political motives.

Performance evaluation is also another function that is performed by the auditors. In doing their projects, government and its bodies usually develop a target and long-term plan of what is to be achieved. Auditors need to evaluate the government strategic plan and conduct an audit to determine whether the government will achieve the strategies. Simultaneously, the audits will reveal the performance of the government and thus making the government determine whether they are in the appropriate track. Performance auditing will therefore make the public and the governments improve on the quality of the services and detect deviations at the earliest time possible Nicoll 45.

On the same note, the auditors will provide the recommended advice to the government about their performance and ensure efficiency in their execution.

Besides, public sector auditors have the mandate of ensuring that the government operations are conducted within the laws. Government expenses and revenues are made with adherence to particular legislations. This therefore necessitates the auditors to seek the expertise knowledge to help interpret and determine that the operations are legal and accepted. For example in collecting their revenues, the government must ensure that the relevant tax legislations are adhered to and that the fiscal and monetary policies considered. Auditors have the obligation to make a report on whether the government operations were legal and sanctioned Nicoll 45()

Nonetheless, public sector auditors have the function of advising the government. Auditing function has undergone several transformations from the periods when it was simply a function of giving opinion but also to an error where auditors are looked upon to offer advisory roles. The auditors should therefore advice the government on the impacts of their operations on the public and on other improvements that can be made to maximize on the service delivery. In pursuing their taxation policies and fiscal policies, the auditors need to offer appropriate advice to the executive to ensure that the policies improve economic performance and improve the welfare of the society. Government expenses should improve the economic performance and ensure stability in the financial markets. If auditors provide technical advice to the governments, stability and better management will be realized hence improving the welfare of the citizens.

The management of public resources has been flooded by corruption and theft. This calls for need to conduct forensic audit with the aim of determining the illegal and abusive use of public resources Marr 96.

In forensic auditing, auditors use auditing procedures and knowledge to detect the deliberate actions by officers to siphon public resources for their personal interests. In cases where huge public resources have been diverted in illegal ways, the auditors will have the obligation to institute such procedures to reduce losses and inefficiencies in the management of public finances. In the event that such procedures fail to detect the illegal acts, the public will risk losing vast amount of resources and threatening economic growth. Corruption and other illegal crimes can also result into destabilization of the financial markets.

Auditors also have the important mandate of deterrence. The presence of auditors will make the help in reducing the chances of corruption and promote good public finance management. Auditors' actions deter the occurrences of risk by evaluating the controls of existing functions and those proposed for new functions Kumar and Sharma 314.

Similarly, auditors have the role of assessing the organizational risk that is able to increase the risk factors. In addition, auditors are helpful in deterring fraud occurrence by reviewing the likely changes in legislation, rules, and procedures. Finally, the role of deterring fraud and abuses is through reviewing contracts to determine conflicts of interests. Deterrence could also be made possible from the previous successful detection of fraud and losses. If there is, a history of successful uncovering of fraudulent and negligent losses, government officials would their best to deter the occurrences of new losses and fraud. This would require that auditors involved in an engagement are highly qualified and experienced in order to ensure successful conduct of audit processes.