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SAI INDIA

10th ASOSAI Research Project:“Audit to Detect Fraud and Corruption: Evaluation of the Fight against Corruption and Money Laundering”

V – Meeting (Malaysia)

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BASIC INFORMATION – SAI INDIA

The Comptroller and Auditor General (CAG) of India is an authority, established by the Constitution of India under Chapter V - Article 148 – 151.

Audits all receipts and expenditure of the Government of India and the state governments, and also maintains the accounts of state governments.

The reports of the CAG are considered by the Public Accounts Committees.

Depending on the objective of Audit, they are broadly classified as - Compliance Audit, Financial Attest Audit, Performance Audit.

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MANDATE

Anti- Corruption.

Examinations of systems for detection and prevention of fraud and corruption is an integral part of all types of audits.

Cases of presumptive corruption are raised as red flags and notified to the specialized agencies.

Anti- Money Laundering.

No direct mandate - limited to sharing information about the presumptions if any, raised during field audit and co-operating with the Anti-Money Laundering Agencies of the country.

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Emanates from the Constitution of India – Articles 148-151. CAG’s Duties, Powers and Condition of Service Act – 1971. Regulations on Audit & Accounts – 2007.Auditing Standards – 2002. CAG’s Manual of Standing Orders (AUDIT) – 2002.Standing orders on Role of Audit in relation to cases of fraud and Corruption.

The CAG of India is the head of the Indian Audit and Accounts Department.

Managed by approximately 650 officers of Indian Audit and Accounts Service Over 48,000 employees across the country. The CAG’s Office is located in Delhi and is Head Office of IAAD. Supported by 133 field offices spread across India.

MANDATE

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A - BEST PRACTICES OF PREVENTIVE ROLE IN ANTI-CORRUPTION.

OBJECTIVES.

aim to effectively combat corruption by audit & audit reporting.

aim to promote accountability, transparency and good governance.

aim to strengthen a culture of robust internal controls.

aim to act as effective /satisfactory deterrent.

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BENEFITS

Risk minimization.

Strengthening of the Internal Control.

Improvement in the overall governance mechanism.

Developing a networking relationship with other enforcement agencies.

Preventive Role

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TYPICAL EXAMPLE OF BEST PRACTICES. Auditing Standards of SAI India As per the Auditing Standards (2nd Edition, 2002 – Chapter 3, para 6) the auditor,

in determining the extent and scope of the audit, should study and evaluate the reliability of internal control.

Financial Audit controls that assure the accuracy and completeness of accounting records.

Compliance Auditcontrols that assist management in complying with laws and regulations.

Performance Audit.controls that assist in conducting the business of the audited entity in an economic, efficient

and effective manner,

Preventive Role

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Preventive Role

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PRE-REQUISITES Understanding the entity. Evaluate the efficacy of the existing control environment in preventing

opportunities of corruption.RESOURCE

Creation of a database. Strategy/directions to the field audit parties. Skill development.

TIMEFRAME This is an ongoing commitment as reflected in strategic planning.

OUTCOME To safeguard the financial interests of the State & to uphold/promote public

accountability.

Preventive Role – Lesson learnt

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RISKS Non implementation of audit recommendations. Quality assurance and quality control. Non -commitment of senior management to develop a robust control

environment. Skill development and regular skills up gradation of auditors.

LINKED DOCUMENT• www.cag.gov.in

• Auditing standards – www.cag.gov.in/html/auditing_standards/htm

• Comptroller & Auditor General’s Manual of Standing Order (Audit) Second Edition – 2002.

• Standing order on Role of Audit in relation to cases of Fraud and Corruption

• http://saiindia.gov.in/english/home/Our_Process/Audit_Methology/Guidelines_Notes/Book_Fraud_Corruption.pdf

• Internal control mechanism and internal audit system in the Horticulture Department

• - http://www.cag.gov.in/html/cag_reports/arp/rep_2006/civil_chap_5.pdf

• Internal Control in Public Works, Ports and Inland Water Transport Department- http://www.cag.gov.in/html/cag_reports/karnataka/rep_2009/civil_chap4.pdf

Preventive Role – Lesson learnt

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OBJECTIVE

Inter-disciplinary approach : we aim to fight with corruption with auditing.

Cooperation with other institutions involved in fighting against corruption.

evaluate and report on the adequacy of systems in place and competence with which the management has discharged its responsibility in relation to prevention, detection, of corruption.

B - BEST PRACTICES OF DETECTIVE ROLE IN ANTI-CORRUPTION.

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BENEFITS

Examinations of systems for detection and prevention of fraud and corruption is an integral part of all - Compliance Audit, Financial Attest Audit, and Performance Audit.

Raising of red flags.

Including the cases of presumptive corruption in the audit findings.

Constructing inventory of corruption opportunities/prospects.

Detective Role

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Illustrative fraud and corruption in contracting for goods and services(Inventory)

Bribery and Kickbacks Changes in Original Contracts

Duplicate Payments Collusive or Carter Bidding

Conflict of Interest Defective Pricing

False Invoices False Representation

Splitting of Purchases Phantom Contractor

Pilferage of Public Assets Tailored Specifications

Fraudulent supply orders Incoherent supplies.

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TYPICAL EXAMPLES OF BEST PRACTICES

Audit can help in preventing corruption by pointing out areas where opportunities for corruption exist.

Therefore, audit should be alert to the shortcomings in the systems and controls that are likely to provide an environment conducive for corruption.

Any indication that an act of corruption may have occurred should cause the auditor to confirm or dispel such suspicions.

Auditor’s attitude of professional skepticism assumes particular importance..

Detective Role

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PRE-REQUISITES Awareness of the indicators for corruption at the audit planning stage. Risk assessment . Developing audit objectives and designing audit procedures based on – Risk

Assessment. RESOURCE

Auditors should have inventory of skills to deal with presumptive cases of corruption

Power to have access to all records in a timely manner. Engage experts or consultants, should the technical nature of audit so

demands. Code of Ethics.

TIME FRAME Ongoing Commitment.

Detective Role – Lesson learnt

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OUTCOME

Networked relationship with other enforcement agencies. Developing audit criteria in the light of good management practices and the

lead practices. Increased awareness about environment conducive to perpetuate corruption

and devising/recommending steps to curb/minimize those areas. RISK

Improper risk assessment at the audit planning stage. Due care to be exercised to reach an audit conclusion. Inadequate documentation. Lack of cooperation from anti-corruption agencies, management of the entity.

Detective Role – Lesson learnt

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Linked Document

Ministry of Defence Department of Defence Production http://www.cag.gov.in/html/reports/defence/2010-11_15PA-OF/chap1.pdf

Auditing standards – www.cag.gov.in/html/auditing_standards/htm

Standing order on Role of Audit in relation to cases of Fraud and Corruption

http://saiindia.gov.in/english/home/Our_Process/Audit_Methology/Guidelines_Notes/Book_Fraud_Corruption.pdf

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OBJECTIVE

Prevent corruption or to suggest steps for minimizing opportunities for corruption. Audit Reports to serve their intended purpose and Government derives their full value. Improving overall transparency and accountability.

BENEFITS Building awareness of the risks of corruption. Generate public awareness - that effective internal controls are in place and working. Constructive recommendations to plug-in holes that can provide opportunities for

corruption.

C - BEST PRACTICES OF REPORTING & FOLLOWING UP ROLE

IN ANTI-CORRUPTION.

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TYPICAL EXAMPLES OF BEST PRACTICES

Credible reporting is dependent on competent relevant and sufficient audit evidence.

Reporting presumptive corruption is more sensitive than other common audit findings.

Observation to be supported by competent and relevant audit evidence, and be independent, objective, fair and constructive.

Reporting Role

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PRE-REQUISITES Unlike common audit findings -corruption is very sensitive both to auditee

and auditor. To ensure the accuracy of the report, auditor should reconfirm all the facts. The concept of competence, relevance and reasonableness of evidence is

utmost.

RESOURCE Quality assurance and Quality control. It is thus, be imperative that the auditors are provided training for skill

development - to refine their concept of objectives of the audits and the procedures for each stage in the audit cycle.

TIME FRAME

Ongoing Commitment.

Reporting Role – Lesson learnt

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OUTCOME

Networked relationship with other enforcement agencies. Coordination between audit and anti-corruption institutions It creates an environment of the "tone at the top“.

RISK

Credibility of SAI can be at stake. Accuracy of report, enhances the accuracy of witness testimony. Safe Custody of material evidence – for later use by ACA’s.

Reporting Role – Lesson learnt

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4.4 Linked Document

a) Anti-Corruption

ASOSAI, ASOSAI Guidelines for Dealing with Fraud and Corruption, 2003.

http://www.asosai.org/documents/doc_others_detail.jsp?idx=139

www.cag.gov.in

Auditing standards – www.cag.gov.in/html/auditing_standards/htm

Comptroller & Auditor General’s Manual of Standing Order (Audit) Second Edition – 2002.

Standing order on Role of Audit in relation to cases of Fraud and Corruption

http://saiindia.gov.in/english/home/Our_Process/Audit_Methology/Guidelines_Notes/Book_Fraud_Corruption.pdf

http://www.dnaindia.com/analysis/column-cag-deserves-a-more-prominent-role-in-public-financial-management-1572053

http://www.business-anti-corruption.com/country-profiles/south-asia/india/initiatives/public-anti-corruption-initiatives.aspx

http://en.wikipedia.org/wiki/Indian_coal_allocation_scam

http://diplomacyandforeignaffairs.com/combating-corruption-agenda-for-action/

http://www.wisdomblow.com/?p=2242

http://www.economist.com/node/21560301

http://sofjustice.wordpress.com/2012/08/18/fighting-corruption-role-of-cag-lokpal-people/

http://www.washingtonpost.com/world/indias-chief-auditor-leads-battle-against-corruption/2012/12/28/1d460832-3f9e-11e2-ae43-cf491b837f7b_story.html

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Thank you.

Praveen Kumar Tiwari - Principal Director O/o CAG Of India.Kulwant Singh -Director , O/o CAG of India.

Q & A …