Practical Advice for Auditors of Foreign Aid Projects in the Pacific: First Co-Operative Financial Audit

Report ID: 242

The regional co-operative audit of funds provided by foreign aid was the first pilot for a co-operative financial audit conducted by the Pacific Association of Supreme Audit Institutions (PASAI) under its co-operative audit program. Supreme Audit Institutions (SAIs) in six Pacific Island Countries (PICs) conducted individual audits. This report summarises the findings across the six individual audits conducted and identifies some of the common weaknesses in the audit of foreign aid projects. Furthermore this pilot program resulted in multiple observations and lessons learned which will assist SAIs in the conduct of financial audits of foreign aid projects in the future.

It is expected that both SAIs and development partners in the Pacific Region may learn valuable lessons from individual SAI reports as well as from this regional report to improve and enhance the quality of the audits of funds provided by foreign aid.

Six SAIs participated (Cook Islands, Fiji, Kiribati, Samoa, Tonga and Tuvalu), with 12 participants attending the planning meeting and 10 participants attending the final reporting meeting.

The conduct of a financial audit does not include any scope for the auditor to comment on the efficiency or progress of the project itself or the effectiveness of the foreign aid received by government. This scope falls under the audit requirements of a performance audit. On this basis, the audit reports provided an audit opinion on compliance with the funding agreement.

The audit findings that resulted from the audits are summarised as follows:

1. non –compliance with the funding agreement in relation to procurement processes and reporting requirements

2. weak controls over the disbursement of payments

3. poor record management systems

4. lack of asset management processes in place (no fixed assets register)

5. budget reports were not sufficiently comprehensive and were sometimes not prepared according to funding agreements (or project operational manuals)

6. untimely budget reporting which limits their usefulness

7. lack of evidence of governance arrangements such as no signing of minutes of steering committees and no sign off by review panelists to engage contractors

The management responses received from the auditees were positive and in support of the audit recommendations raised by the SAIs.

Overall the foreign aid for these projects was generally managed effectively and as a result the findings were not pervasive and the audit opinions issued were therefore unmodified. However, these audit findings are repeated year after year and usually the auditors do not follow up on the implementation of recommendations until the next annual audit. If these audit issues are not addressed by the implementing agency when the auditors raise them, this increases the opportunity in the future of risk of theft, fraud and misappropriation of funds or assets.

Details of the audit scope, including what constitutes a risk-based approach to financial auditing and audit findings can be found in Section 1 and Section 2 of this report.