I. Improvement in the quality and timeliness of Audit Reports,2015

Reference No. D.O. No 259/PPG/18-2015 Dated: September 14, 2015

As you are aware, we continue to strive for excellence in the performance of our functions. Thus, steady improvement in the quality and timeliness of audit reports has been our enduring concern. I write to impress upon you to keep a close watch on these aspects.

2. Quality of audit reports depends on due attention being given to the following issues: (a) significance and importance of the matter to be undertaken for examination by audit; (b) adequacy of scope and coverage of audit examination; (c) fairness and objectivity in examining all relevant material; (d) reliability of audit findings and conclusions based on verifiable evidence; (e) usefulness of audit finding emerging after examination of a representative sample; (f) giving reasonable opportunity to those whose actions and decisions are being commented upon by Audit; (g) clarity in presentation of audit findings in a manner easily understood by the stakeholders; and (h) making only feasible and specific recommendations.

3. Timeliness of audit reports is another important consideration for us. This implies that we should preferably take up topics of contemporary relevance and that actual conduct of such audits and reporting thereon should also not be so unduly delayed as to lose its contemporary relevance. The timeliness would thus include elements of both the timeliness at the time of selection of topic as well as at the time of presentation of audit report.

4. The Audit Quality Management Framework adopted by the Department is designed to achieve these objectives while ensuring compliance with the CAG's (DPC) Act 1971, Regulations on Audit and Accounts 2007, Auditing Standards, Manuals and Guidelines. Rigorous application and implementation of the prescribed procedures would enhance quality of the reports. This body of available guidance needs to be consistently followed without any dilution.

5. Realizing the need to take stock of the existing position regarding quality and timeliness and with a view to suggest measures to be taken for further improvements, two Committees were constituted. After careful consideration of their recommendations, it has been decided to strengthen the existing work practices in these areas. These instructions are meant to reiterate and re-emphasize the existing instructions regarding actions expected to be taken by the field audit offices. It is important that all the officers and staff engaged in the audit process imbibe the underlying issues, intent and concerns and implement these instructions in letter and spirit. The heads of field audit offices may arrange for wide dissemination of these instructions.

Audit planning and risk analysis

6. The manpower and budgetary resources being limited, it is imperative that these resources be optimally utilized through a rigorous audit planning exercise. Audit planning, being the starting point of the entire audit exercise, is the main area of attention to address quality issues. While undertaking audit planning, the audit offices should focus on important areas thrown up by a robust, structured and formal risk analysis. Such a process is expected to yield a more effective audit output with resultant improvement in quality, because of better utilization of available resources in a timely manner.

7. A formal, documented and structured risk analysis must be carried out for identification and grading of risk and materiality of various auditable entities and subjects for audit.

8. Basic guidance on risk analysis and risk-based selection of units and subjects is contained especially in section II-Chapter I, paragraph 2.1.25, Section VI- Chapter I, paragraphs 6.1.9, 6.1.10, 6.1.14 of Manual of Standing Orders (Audit) 2002; Chapter 2, paragraphs 14 to 17 of Internal Controls Evaluation Manual and Chapter 3, paragraphs 3.5, 3.9 & 3.11 of Performance Auditing Guidelines 2014. This body of general guidance should be applied by the field audit offices in a formal manner to document the profile of the entire auditable domain in terms of audit risks.

9. The process of risk analysis and preparing the risk profile of the auditable domain should go beyond relating the audit risks to merely the annual receipts and expenditure of the auditable entities and should include the documentation of issues that are engaging the attention of our stakeholders, as evidenced from legislative proceedings, government announcements and media coverage. There is already an established mechanism of Audit Advisory Board to reach out and seek inputs, where feasible and available, from various stakeholders. Where considered appropriate, the auditable entities may also be consulted at appropriate levels to assess the audit risks. Specific weightage should be assigned to such factors in the risk assessment.

10. Up-to-date folders should be maintained both in physical and electronic form in respect of each sector, department, group of related auditable entities and major scheme/programme. These folders will facilitate the process of audit risk analysis and help in timely identification of areas for audit scrutiny in a systematic manner. These will also help in conduction desk reviews and pilot studies when particular subjects are taken up for performance audits. Responsibility of maintaining complete and updated folders should be specifically assigned to designated officers.

11. The risk analysis is not a one-time exercise. The risk profile of auditable domain should be periodically reviewed and updated so as to ensure that major changes in audit risks and inclusion of new auditable entities and subjects are properly documented in a timely manner. Requisite approval of competent authority should be obtained in time if the review of audit risk profile warrants any changes in the annual audit plan. Hence, the risk analysis folders should be reviewed by the Group Officers, as per periodicity to be fixed locally by the heads of field audit offices, for appropriate action. This action may include issuing advisories to audit parties or suggesting mid-course changes in the annual audit plan for approval by the Headquarters Office.

12. Audits that would lose impact if not taken up and reported promptly need to be included in the annual audit plan with due approval, by deferring or excluding lower risks audits included in the plan, if necessary. Higher priority audits should be given due consideration while scheduling the work plan for the year.

13. The field audit offices should put in place their own mechanism to operationalize the above guidance on risk analysis, periodic review and updation of audit risk profile and seeking approval of competent authority for audit plans.

Preparatory work

14. Adequate desk review and research at the headquarters of the field audit office should normally precede all field visits by the audit teams. This will ensure identification of focus areas and specific audit issues that need to be examined. Risk analysis folders to be maintained in all audit offices are expected to provide basic reference material for this purpose.

15. The performance audits should normally commence only after a pilot study or at least a thorough desk review. Depending upon the nature of subject being taken up for performance audit, sometimes a desk review alone may be sufficient rather than a full-fledged pilot study. A judicious decision about the time to be allowed for this preparatory work would necessarily depend upon familiarity with the subject matter and the extent of clarity about audit issues to be examined. Normally, the desk reviews and pilot studies on topics included in the Annual Audit Plan of a particular year should be completed before the commencement of that year.

16. In order to facilitate effective dissemination of available inputs and interaction among the personnel involved in performance audits, heads of field audit offices may also organize workshops, where considered necessary. Subject experts with domain knowledge may be invited to provide an overview of the latest developments in the selected field to the audit teams.

Audit findings and their presentation

17. The audit findings are processed for inclusion in inspection reports, management letters and/or audit reports depending on their relative significance. The audit reports should be compact and contain only such material which is significant enough to merit the attention of the concerned legislature.

18. Unduly long reports adversely affect readers’ attention and interest, eclipsing the core audit findings. The material that should go into the audit report should be carefully distilled and all efforts must be made to restrict the size of the audit report by weeding out material not significant enough to warrant inclusion in the audit report. Unnecessary annexure, tables and statistical details not germane to the audit findings need to be removed. Verbatim quotation should be resorted to sparingly as this affects the flow of direct narration and distracts the readers’ attention. Audit observations/conclusions not finding place in audit reports may be pursued through management letters or inspection reports, as appropriate.

19. Since the audit reports are used by a wide array of stakeholders, there is a need for us to explain even technical and complex issues in a direct and simple manner. Hence, the audit findings must be reported as direct narration in short sentences in an easily comprehensible, crisp language free from complex jargon. Detailed guidance in this regard as already provided in the Style Guide must be followed.

20. It needs to be ensured that there is absolutely no bias in selecting extracts from ‘key documents’ to merely substantiate the audit contention. Equally, it is important to emphasize that fair reporting of the replies furnished by the audited entities is an important indicator of the quality of an audit report.

21. The heads of field audit offices must consider use of innovative info-graphic techniques which should convey the essence of the audit findings clearly without compromising on the accuracy of the audit observations. At the same time, the nuances should not be lost while trying to simplify matters. A judicious balance has to be maintained in reporting all relevant facts precisely. Simplicity of presentation must not be at the cost of accuracy.

Perspective and balance

22. It is important for us to assure the stakeholders that the audit examination is comprehensive and that the audit findings are balanced and give a fair indication of the actual outcomes of the programmes/projects/schemes and the economy, efficiency and effectiveness of their implementation. Adequate care should be taken to ensure that the audit report is not a mere compilation of failures and deviations without giving a balanced assessment of the overall performance. A Performance Audit Report, while pointing to areas where remedial action is warranted, must follow a holistic approach and present a balanced view of the performance.

Finalization of audit reports

23. The head of field audit offices must ensure that the draft material proposed for inclusion in the audit reports is exactly in the form they would like it to appear in the final audit report. Draft material proposed for inclusion in the audit reports should not be as a detailed narrative giving background of the case. In case it is felt necessary to provide background information to the Headquarters office, the same should be sent separately.

24. The heads of field audit offices must ensure that facts and figures are fully checked with reference to key documents and that extant guidelines on reporting style including length are fully complied with.

25. Detailed timeliness should be drawn up covering various stages of the audit process for every topic included in the approved Annual Audit Plan. Progress against these timelines should be personally monitored by the heads of field audit offices.

Other matters

Matters of urgent public importance

26. The heads of field audit offices should actively explore possibility of appropriate audit product on matters of urgent public importance. To this purpose, a focused examination of a relatively narrow band of issues could be considered on fast track. A proactive monitoring by the heads of field audit offices of emerging audit risks of special concern to our stakeholders would help identify such topics.

Non-cooperation by audited entities

27. Even after a subject of contemporary relevance is selected for examination in audit, timeliness of audit reporting may get frustrated on account of various factors including lack of cooperation by audited entities. In order to maintain the timeliness of audit reporting, the provisions of the Performance Auditing Guidelines may be relaxed, as appropriate, on case by case basis by the concerned DAI/ADAI. This should be done after recording detailed reasons for such relaxation.

28. The audit report should be finalized only after affording reasonable opportunity to the audited entities to present its view point. A specific para on response of the audited entity should be included in all performance audit reports and, if considered necessary, also in other reports. The para may indicate the efforts made by audit to ensure production of records, elicit information and obtain replies from the audited entity.

Sharing of experience

29. Mid-term reviews of a regional or all-India performance audits provide opportunities of sharing experiences by different audit offices working on a common subject. Sharing of experience through virtual networks may also be encouraged.

Oversight on quality and timeliness

30. During the peer review of the audit offices, review of the control mechanism for implementation of these guidelines will henceforth be examined mandatorily.