The supreme audit institution (SAI) of a country is the body responsible for monitoring the collection and expenditure of government funds. Following the principle of separation of powers, institutions like SAIs are established to operate independently and contribute to transparency and accountability in governance. The primary objective of such institutions is to ensure that revenues are collected and spent in accordance with the law.
Key Historical Context
In 1977, the Lima Declaration by INTOSAI (International Organization of Supreme Audit Institutions) highlighted three critical dimensions of independence for SAIs:
Institutional independence – Freedom for audit institutions to operate without external influence.
Personal independence – Protection for members of the audit body from undue interference.
Financial independence – Assurance of sufficient resources for effective functioning.
Legal Provisions in Nepal
Nepal’s Constitution (2015) provides the foundation for auditing governance:
Article 240 establishes the position of the Auditor General.
Article 241 outlines the functions, duties, and powers of the Auditor General.
By law, the Auditor General has the authority to audit all governmental and constitutional bodies. The Audit Act, 2075 further elaborates on legal provisions, including:
Bodies subject to audit.
Auditing methodologies.
Key areas of focus.
Reporting requirements.
Authority of the Auditor General to set standards or issue directives.
Auditing Cycle
The audit process follows a structured cycle:
Audit Planning: Development of a comprehensive plan to guide the audit.
Audit Implementation: Execution of the planned audit procedures.
Audit Reporting: Compilation and submission of findings.
Maintaining Audit Standards: Ensuring adherence to established auditing standards.
Audit Monitoring: Reviewing and following up on implemented recommendations.
Programs and Standards
To enhance the effectiveness of auditing, several programs and standards are in place:
Integrated Public Financial Management Reform Program: Aims to strengthen public financial management.
Fiscal Auditing, Compliance Auditing, and Performance Auditing: Encompasses 13 specific auditing standards.
Nepal Audit Management System (NAS): A digital tool for efficient audit management.
Annual Audit Process
After the submission of the audit report, the Auditor General prepares the audit plan for the subsequent year. This plan is disseminated to all ministries through the Chief Secretary.
The audit guidelines encompass various aspects, including:
Office-based auditing.
Auditing of debtors.
Risk-based auditing methods.
Auditing of provincial and local levels.
Fundamental and specific elements of auditing.
Environmental audits and IT-related audits.
Auditing of organized institutions.
Assessments from an industrial perspective.
Auditing of loss and damage records.
Approval Hierarchy for Audit Plans
Annual Audit Plan (AAP): Approved as the overarching framework.
Entity Level Plan (ELP): Approved by the Deputy Auditor General, focusing on specific entities.
Office Level Plan (OLP): Approved by the Auditor General, addressing individual office-level audits.
Financial Accountability and Audit Regulations
Key provisions from the Financial Accountability and Fiscal Procedures (FAFP) Act, 2076:
Section 35: Requires every office to submit accounting and financial information to the Auditor General.
Section 36: Mandates the maintenance of records and accounts within prescribed timeframes and the prompt resolution of audit queries.
Audit Methods and Scope
The audit methodology involves selecting entities or subordinate units associated with financial transactions. The audits may be:
Comprehensive.
Periodic.
Random.
Based on a sampling approach.
The scope, area, and duration of audits are determined for effective execution. According to Section 5(2) of the Audit Act, the Auditor General decides the procedures, methods, and standards for audits.
Key Areas of Focus
The Auditor General conducts audits considering:
Legality.
Regularity.
Efficiency.
Effectiveness.
Economy.
Audits cover 31 specified areas to ensure comprehensive accountability and transparency.
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