TANZANIA INSTITUTE OF ACCOUNTANCY

DAR SALAAM CAMPUS

LECTURE NOTES – 6

6. Public Sector Auditing

6.1. Definition of Public Sector
The part of the economy concerned with providing basic government services.
The composition of the public sector varies by country, but in most countries the public
sector includes such services as the police, military, public roads, public transit,
primary education and healthcare for the poor.
6.2. Definition of Public Sector Auditing
Audit means an independent examination of financial statement and underlying records
so that the person making the examination can express his own opinion as to whether
the financial position of the organization as at a certain date together with the result of
operations for the period are fairly presented. Where as A public sector audit refers to
audits covering the government and its institutions and other public not-for-profit
organisations.
6.3. Purposes of Public Sector Audit
 To enable oversight, accountability and governance in the public sector
 Improve the lives of citizens/taxpayers
 Oversight. Auditors assist decision-makers in exercising oversight by
evaluating whether public sector entities are doing what they are supposed to
do, spending funds for the intended purpose, and complying with laws and
regulations.
 Detection. Detection is intended to identify inappropriate, inefficient, illegal,
fraudulent, or abusive acts that have already transpired and to collect evidence
to support decisions regarding criminal prosecutions, disciplinary actions, or
other remedies. Detection efforts can take many forms including:
 Deterrence. Deterrence is intended to identify and reduce the conditions that
allow corruption. Auditors seek to deter fraud, abuse, and other breaches of
public trust by:
 Insight. Auditors provide insight to assist decision-makers by assessing which
programs and policies are working and which are not,
 Foresight. Auditors also help their organizations look forward by identify-ing
trends and bringing attention to emerging challenges before they become crises.
6.4. Benefits of Public Sector Audit
 It improves accountability and good Governance in the Public Sector.
 It examines management, practices and control and reporting system.
 They simply tell the legislatures how well the policies were implemented.
 Will result in objective independent assessments of the extent to which
the audited organization achieves economy, efficiency and effectiveness
in its operations.
 It enables to identify the major deficiencies in management and control
practices would be identified.

6.5. Types of Public Sector Audit

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 The three main types of public-sector audit are defined as follows:
6.5.1. Financial audit
This focuses on determining whether an entity’s financial information is presented in
accordance with the applicable financial reporting and regulatory framework. This is
accomplished by obtaining sufficient and appropriate audit evidence to enable the
auditor to express an opinion as to whether the financial information is free from
material misstatement due to fraud or error.
6.5.2. Performance audit
This focuses on whether interventions, programmes and institutions are performing in
accordance with the principles of economy, efficiency and effectiveness and whether
there is room for improvement. Performance is examined against suitable criteria, and
the causes of deviations from those criteria or other problems are analysed. The aim is
to answer key audit questions and to provide recommendations for improvement.
6.5.3. Compliance audit
This focuses on whether a particular subject matter is in compliance with authorities
identified as criteria. Compliance auditing is performed by assessing whether activities,
financial transactions and information are, in all material respects, in compliance with
the authorities which govern the audited entity. These authorities may include rules,
laws and regulations, budgetary resolutions, policy, established codes, agreed terms or
the general principles governing sound public-sector financial management and the
conduct of public officials.
6.6. Benefits of Public Sector Audit
 Helps holding implementers of Government programmes accountable for the
economic, efficiency and effective discharge of programmes. This may promote
better public service delivery while enhancing public accountability and
management.
 Helps in the identification of problem areas include factors that cause problem.
This helps in finding alternative solutions that is through recommendation for
improvement to policies, procedures and structure which could help in reducing
wastage and in efficiencies.
 Helps in evaluating performance of individuals and departments or sections in
an organization. Evidently performance audits assist in obtaining a critical view
of compliance with legal requirements policies, objectives and procedures.
 Helps citizens obtain insight into the management of different government
programmes and activities. this because the auditor after completing his work of
auditing, he disclose information to the public board of directors .And that
informations disclosed to citizen through board or directors, so this enable the
citizens to know more about the company, by which this information will be
used by stakeholder in different aspects.
 Public sector audits may serve as a basis of decisions on future funding and
priorities. this means the report prepared by an auditor after completion of his
work, it will be used by management in decision making process. So the
management tends to concentrate in all areas affected in their decision making
process, example errors and frauds.
6.7. Internal Control in the Public Sector
 All monies spent for the services of the government are spent on the authority of
the parliament
- Appropriation Act
- Supplementary Appropriation Act
 Before Appropriation Act is in effect money are drawn on the strength of a
presidential warrant given under article 139 of the constitution section 21(1)
and (2)

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  presidential warrant followed by a grant of credit under section 16(2)
 The paymaster general gives a warrant under section 16(1)
 Accountant general gives a warrant to accounting officers under section 17(1) as
emphasized in 17(2)
6.8. Internal Audit Services
 Established under the following PFA regulations 28,33,to 35
- regulation 28 – existence
- regulation 33 – definition of internal audit
service
- regulation 34 – duties of internal audit
service
- regulation 35(1) disclaimer, every officer
has to comply with the instructions.
 Regulation 35(2) the responsibility for detection & investigation of internal fraud
shall be the responsibility of the mgt. though auditor shall be alert to
opportunities to fraud such as control weaknesses
 A third eye of the accounting officer
 Internal auditors have been useful in reducing fraud
 Concentration is on pre-audit and transaction audit
 The complement of the work of pre-audit section of the accountant
6.8.1. Definition of Internal Audit
Means an independent appraisal of activities established within a Ministry and Region
or Department which operates as a service to the head of the unit
6.8.2. Duties of Internal Audit Service Unit
 Appraise the soundness and application of accounting, financial and operational
controls
 Review and report on proper control over receipts, custody and utilization of
financial resources.
 Review and report on conformity with financial and operational procedures laid
down in any legislation or instruction issued from time to time by the
accountant general.
 Review and report the correct classification and allocation of revenue and
expenditure of the unit.
6.9. Government Department Audit Committees
 The public finance regulations of 2001 RE: 2004 under section 30-32 and
circular letter number 9 of 2003/2004, elaborate that there shall be audit
committees in each ministry, region, and independent department, and
executive agencies.
 Regulations 30 – existence of audit committee in each MDA
 Regulation 31(1) and (2) membership of the committee
 Regulation 32(1) the functions
 Regulations 32(2) powers of the audit committee
6.9.1. Function of the Audit Committees
 The audit committee shall meet quarterly.
 Be responsible for the approval of internal control and annual strategic audit
plans of the organization.
 Review all internal and external audit report involving the matters concerning to
senior management of the ministry, region etc. including the identification and
dissemination of good practice.
 Provide advice to the accounting officers on action to be taken on matters
concern and raised in a report of internal auditor or the C.A.G.

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  As far as practicable coordinate audit programs conducted by the internal
auditors and the C.A.G.
 Provide advice to the accounting officer on preparation and audit review of
financial statement of that department of the government.
 Prepare an annual report on its functions copies of which should be send to the
accounting officer, paymaster general, accountant general and the controller
and audit general
6.10. National Audit Office
 There shall be a public national audit office which shall be headed by the C.A.G.
terms and condition specified in the constitution section 143(1).
 Subject to the provision of this section the president may appoint a qualified
person to act as a controller and audit general during the temporally absence or
incapacity of the C.A.G.
6.10.1.Duties of the C.A.G.
 To see if the expenditure was authorize by the perfect to authorize.
 To see if the expenses is done by rule and regulation provided by treasury.
 To see if the expenses is prime fact not more than occasional demand.
 To see if the expense was classified into vote, sub vote, subhead and item.
 To see if the stores price are maintained at reasonable.
6.10.2.Powers of the C.A.G
 Call upon any public officer for any explanation and information that the CAG
may require.
 Summon and examine on oath any person as he may determine in connection
with receipts or expenditure of public money or public property.
 Authorize any person eligible to be appointed as an auditor of a company or to
be registered as an accountant to conduct examination / audit and report to the
CAG.
 Without payment of any fees, cause search to be made in extracts to be taken
from any book of accounts.
 Seek the professional opinion or advice for the attorney general or any other
qualified person.
 From time to time, acquire the services of any person whether or not the person
is public officer.
 Accept as a correct without further examination, or reply upon a certificate of
any other person as he think fit.
 He shall disallow the expenditure as a charge on public funds or call in question
the sum concerned, in case of expenditure by the a/o, the judiciary, or national
assembly, that are either seems to be;
- Not brought to account.
- Deficiency or loss.
 Report to the president of the constitution.
 Notify treasury on his report.
 CAG has a power to access all books of accounts.
 To ensure that income statement and balance sheet does not give misleading
information.
 To ensure that asset recorded are in existence.
 To discover and prevent fraud and errors.
 Is to ensure that all transaction which should have been recorded is recorded.
 To establish that an a/c system exists provide the information required by laws
in Tanzania.

6.11. Public Accounts Committee

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  The public accounts committee is a mechanism through which the legislation
exercises control over the expenditure of public money that it has appropriated
to meet the needs of the country or the province only by ensuring that financial
affairs are managed properly.
 Their main objective is to scrutinize expended funds and accountability in terms
of existing acts, or rules lay down by the parliament. Financial control and an
authorized expenditure are the main focuses of attention.
6.11.1.The Purposes of the Committee
 To monitor financial administration within the government and hold the
executive authority accountable for its spending of tax payers money.
 To provide assurance to the public that public moneys and assets are being
properly managed.
6.11.2.The Role of the Committee
 Examine the accounting and financial matters raised by the auditor general for
investigation.
 Make recommendations regarding better utilization of public funds.
 Make contributions regarding expenditures thus ensuring integrity, honesty and
value for money.
 Ensure that policies and program of government are implemented correctly.
 Work together with the auditor general to achieve maximum accountability to
legislature.
 Develop good relationships with the media.
6.12. Internal Auditor General
6.12.1. Establishment
Following the Amendments of the PFA CAP 348 the Government under Ministry of
Finance established the Internal Auditor General’s Division (IAGD). Before this
amendment all functions of the IAGD were under the Accountant General’s Division.
The Internal Auditor General was appointed in April 2011 and the Internal Auditor
General’s Division was fully in operation from July, 2011 having five sections namely
- Quality Assurance Section
- Budget and Payroll Audit Section
- Technical Audit Section
- Local Government Authority Audit Section
- Risk Management Systems and Control Section.
6.12.2. Objectives
Establishment of IAGD aimed at
 Increasing independence to Internal Auditors when performing their duties.
 Providing more scope to internal audit functions by focusing on introducing
new areas like
- Risk Management Systems;
- Control and Governance processes;
- Quality Assurance;
- Technical Audit and Budget and Payroll Audits.
6.12.3. The Role and Functions
The role and functions of the Internal Auditor General are as follows:
 Developing Internal Audit Policies, rules, standards, manual, circulars and
guidelines
 Reviewing and appraising compliance to laid down laws, regulations,
standards, systems and procedures in Ministries, Departments, Government
Institutions, Local Government Authorities, Executive Agencies and Donor
Funded Project;

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 Scrutinize and compile audit reports from Ministries, Department
Government Institutions, Regions, Local Government Authorities, Executive
Agencies and Donor funded projects (d)Undertake continuous Audit Risk
Management;
 Develop and supervise the implementation of Internal Audit Strategy
 Develop, implement and review annual audit Programme;
 Liaise with the Controller and Auditor General, Accountant General,
Accounting Officers and Professional Standards Settings Authorities on audit
matters;
 Manage and control the quality of operations of the audit cadre and enhance
Capacity of Audit Committees
 Evaluate the effectiveness of Audit Committees in Ministries, Departments,
Government Institutions, Regions, Local Government Authorities and
executive agencies;
 Facilitate the development of internal audit cadre;
 Review and appraise budget planning and implementation with a view to
promoting compliance with national goals and objectives;
 Prepare audit reports and advise the Government on intervention measures
towards ensuring values for money on public expenditure;
 Make follow up on the agreed audit recommendations and required
corrective actions
 Undertake special and investigative audits;
(o)Review, monitor, evaluate and recommend on systems of
Governmentnrevenue collections for proper accountability; and
 Participate in the hearings and render advice to the relevant Parliamentary
Oversight Committees.