Lagos Audit Manual - Part One

Audit Manual For the Office of the Auditor General for Local Governments Lagos State
Lagos State Local Government Audit Manual
Version 2.2 December 2012
Preface
This Audit Manual was first produced for the Office of The Auditor-General for Local Governments in Lagos State in November 2005. It was subsequently fully revised in December, 2012. The intention of the manual is three-fold. Firstly to ensure that audits are performed in line with audit standards and best practices; secondly to ensure compliance with the Model Financial Memoranda for Local Government and other statutory regulations as may be revised from time to time; and thirdly to reflect the good practices which have been developed in my office. This Audit Manual is designed to enhance and standardise audit practice within the Office of the Auditor-General for Local Governments by promoting the sharing of knowledge and good practice. This should encourage standard uniform practice expected to facilitate peer review and self-evaluation by the Audit team. This in turn will lead to improved performance which would assure quality service delivery to Local Governments in Lagos State.
Foreword
The mandate of the Auditor-General for Local Governments, in broad terms, is to examine how well the Local Governments have managed their financial affairs and to report the results of these examinations to the State House of Assembly through the Public Accounts Committee (Local). The Audit Manual sets out the principles and audit procedures which are to be followed by every audit team member when auditing or undertaking audit related assignments in Local Governments, Local Government Education Authorities and allied agencies or when called upon to carry out investigations into matters that may have come before the State Assembly or indeed the Office of the Auditor-General for Local Governments (OAGLGs). The manual sets out the high standards of professional services which the AGLG- expects of his staff and reflects current International Standards on Auditing and I trust that the manual will add value to the work undertaken by all audit teams. It is a reform strategy brought about by the need to enhance service delivery and productivity of this office. As a symbol of "Public Trust and Accountability", this manual will aid compliance with International Standards and align us with the aspiration of Lagos State Government in achieving timeliness, adequacy and effectiveness in financial reporting. The Manual is expected to be a reference point for the continuous improvement of our audit practice. As our knowledge of and experience with auditing continues to expand and evolve, so will this Manual. The Manual has been prepared for use in guiding our audit programme and tasks. We recognise that some changes to this document may be necessary in order to ensure that the Manual is kept upto date and current. Therefore, this manual, in its entirety, will be subject to review from time to time to in order to: Keep up with new developments in audit practice, Effect legislative changes as they affect the objectives of the Office of the Auditor General for Local Governments from time to time and Keep up with the challenges of our assignments.
Audit Teams should be proud of this Revised Audit manual and as such are expected to be in full compliance with its contents on an ongoing basis. All new staff members are required to read for retention, the contents of this Manual. Comments or suggestions for improving the Manual are welcome and such should be addressed to the Auditor-General for Local Governments, Lagos State. I wish to express my profound gratitude to the Growth and Employment in States (GEMS3) project, funded by the Department for International Development (DFID) of United Kingdom who engaged Andy Wynne and F.O. Lasisi to work with my staff to review and revise the Manual in line with INTOSAI international auditing standards and current good practices in my
office. My sincere appreciation also goes to the Lagos State Government that has provided us with opportunities for capacity building enhancement of the performance of our duties. To the members of staff of this office, I say a special thank you to all for the support and dedication with which everyone has undertaken their tasks.
M. M. Hassan Permanent Secretary/Auditor-General for Local Governments, Block 2, Old Secretariat, Ikeja, Lagos State. www.lagoslocalaudit.org mhassan@lagoslocalaudit.org
December, 2012
How to Use The Manual

This manual has been designed and presented in loose report format for ease of updating. Whenever a review of the manual is undertaken, it will only be necessary to reprint the pages of the manual that are affected by the exercise. The page numbers at the bottom of the pages are for the purpose of filing updated pages or pages affected by such update. With time it may become necessary to put gaps in the page numbering. These are necessary in loose leaf reporting. Where such a gap occurs, there should be a note under the page number preceding the gap on what the next page number should be.
Updated Pages
Updates come in loose leaf and with them should come filing instructions explaining which pages to remove and which new pages to insert. To keep your manual up to date, updates should be filed as soon as possible after the receipt of the new pages. This may be done collectively within an audit team. The filing instruction should carry date of the update to provide a check on how current a manual is. To misfile new pages of updates is to render your manual inadequate. Once the new pages have been inserted, the filing instruction itself should be filed in the section marked "Last Update Filing Instructions" Pages being updated should carry the date of update next to the page number at the bottom of the page in small italics numbering.
List of Abbreviations Used in this Manual

AGLG APS CAF CPE CT EFCC ExCo ICAN ICPC INTOSAI ISA LGA Auditor-General for Local Governments Audit Planning Sheet Current Audit File Continuing Professional Education e Council Treasurer Economic and Financial Crimes Commission. Executive Committee Institute of Chartered Accountants of Nigeria r Independent Corrupt Practices Commission International Organisation of Supreme Audit Institutions International Standards on Auditing Local Government Authority, which should be read to include Assigned Agencies (Local Government Education Authority and Pensions Board) n Local Governments, which should be read to include Assigned Agencies (Local Government Education Authority and Pensions Board) Office of the Auditor-General for Local Governments Public Accounts Committee Permanent Audit File State Universal Basic Education Board Value for Money
LGs
OAGLG PAC PAF SUBEB VFM
OFFICE OF THE AUDITOR-GENERAL FOR LOCAL GOVERNMENTS, LAGOS STATE AUDIT MANUAL
Contents
Chapter 1: Introduction Part One Regulatory Audit Chapter 2: Chapter 3: Chapter 4: Chapter 5: Audit Planning Evaluating and Testing Internal Controls Performing Audits Working Papers and Audit Evidence
Chapter 6:
Audit Report and Materiality
Part Two Other Audit Methodologies (not included) Chapter 7: Chapter 8: Chapter 9: Audit of Financial Statement Capital projects Inspection Exercise Staff Verification Validation Exercise
Chapter 10: Preventing, Detecting and Reporting Fraud and Illegal Acts Chapter 11: Special Audit and Investigation Chapter 12: Co-ordinating Audit Activities Chapter 13: Professional Proficiency Chapter 14: Standards and Guidelines for Auditing
CHAPTER 1 INTRODUCTION
1.1 Introduction
This manual is a revision and modernization of the first ever Local Government Audit Manual which was developed in 2005. The revision of the 1965 Audit Manual was necessitated by the need to reflect changes in good practice in the execution of Local Government audits This manual is prepared for the use of the staff of the Office of the Auditor General for Local Governments to explain the processes and procedures necessary to carry out auditing in an orderly and efficient manner. The purpose of the Manual is to offer practical guidance to Local Government auditors. The manual is designed to meet the requirements of all Auditors in the Office of the Auditor General for Local Governments. Every audit needs to comply in various respects with the requirements of legislations, professional standards and best practice. This Manual sets out policies and practices that should be applied to meet these requirements. Although approach should always be tailored to meet the individual circumstances of each audit, the framework will normally be the same on every audit. The manual will need to be continually updated to reflect changes is approach and refinements to the audit methodologies adopted or to reflect changes in the regulatory environment, for example, the format of the annual financial statements. In addition, additional sections may need to be added, for example, covering the work undertaken directly for the Public Accounts Committee (Local) Public Accounts Committee (Local) of the State House of Assembly and formal risk management.
1.2
Knowledge of the Manual
All audit staff in the Office of the Auditor General for Local Governments are expected to have a reasonable knowledge of this manual and to follow the good practice it contains during their work. Audit staff have the responsibility to report areas where the manual needs to be updated or is considered to be deficient.
1.3
Overview of the Manual
The main work of the Office of the Auditor General for Local Governments is to undertake quarterly inspection audit visits to all of the 57 local governments and local council development areas (referred to generically in this manual as local governments) in Lagos State. Chapters 2 to 6 cover this work from planning to reporting. This work is mainly regulatory or compliance audit. Part two of the manual covers other aspects of the work of the Office of the Auditor General for Local Governments that are also important. These include, for example, financial audit (opinion on the financial statements), inspections of completed capital projects, staff and pensioner verification.
1.4
Overview of Quarterly Audit Inspections
This work follows five main stages which are each covered in a chapter of the manual: Planning
Evaluating internal controls Audit testing Documentation of audit work Audit reporting.
This process is also shown in the following diagram:
Key A - Procedures are mostly analytical procedures B - Procedures involve usage of basic substantive procedures C - Procedures entail execution of comprehensive testing D - Procedures entail detailed testing of audit evidence. Planning is important to ensure all aspects of the work are completed and the work is
undertaken efficiently. It occurs at two levels: planning the time and number of auditors to visit each local government planning the allocation of audit tasks to each auditor with time budgets. Evaluation of internal controls is an important first step for each inspection visit. Auditors should be able to gain some assurance from the quality of internal financial controls and may assist the local government by making detailed recommendations on how these may be further improved. If the internal controls are considered to be strong then only a sample of payment vouchers and other transactions may need to be checked. Audit testing is a core part of this audit work. Tests need to be undertaken carefully to ensure that all significant irregularities are identified and to assist with determining the appropriate audit opinion on the annual financial statements. Documentation of audit work is necessary to ensure that the work can be properly supervised and to ensure that adequate evidence is available to explain the results of our work to the Chair and Council Treasurer of the local government. It is also needed to ensure that the Auditor General can report adequately to the Public Accounts Committee (Local) on each local government. Audit reporting is the output and the public face of our work. Improving public accountability is a core part of the work of the Office of the Auditor General for Local Governments and our reports are available to be the public and so must be written carefully to ensure that all key stakeholders understand the work which has been undertaken and the results that we have found. The most important stakeholder is the Public Accounts Committee (Local) of the Lagos State House of Assembly.
Annex A The INTOSAI basic principles are:

(a) The SAI should consider compliance with the INTOSAI auditing standards in all matters that are deemed material. Certain standards may not be applicable to some of the work done by SAIs, including those organised as Courts of Account, nor to the non-audit work conducted by the SAI. The SAI should determine the applicable standards for such work to ensure that it is of consistently high quality. (b) The SAI should apply its own judgement to the diverse situations that arise in the course of government auditing. (c) With increased public consciousness, the demand for public accountability of persons or entities managing public resources has become increasingly evident so that there is a need for the accountability process to be in place and operating effectively. (d) Development of adequate information, control, evaluation and reporting systems within the government will facilitate the accountability process. Management is responsible for correctness and sufficiency of the form and content of the financial reports and other information. (e) Appropriate authorities should ensure the promulgation of acceptable accounting standards for financial reporting and disclosure relevant to the needs of the government, and audited entities should develop specific and measurable objectives and performance targets. (f) Consistent application of acceptable accounting standards should result in the fair presentation of the financial position and the results of operations. (g) The existence of an adequate system of internal control minimises the risk of errors and irregularities. (h) Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit. (i) All audit activities should be within the SAI's audit mandate. (j) SAIs should work towards improving techniques for auditing the validity of performance measures.
Chapter 2 Audit Planning

INTOSAI Auditing Standards state:
The auditor should plan the audit in a manner which ensures that an audit of high quality is carried out in an economic, efficient and effective way and in a timely manner. The following paragraphs explain planning as an auditing standard. 3.1.2 The SAI should give priority to any audit tasks which must be undertaken by law and assess priorities for discretionary areas within the SAI's mandate. 3.1.3 In planning an audit, the auditor should: (a) identify important aspects of the environment in which the audited entity operates; (b) develop an understanding of the accountability relationships; (c) consider the form, content and users of audit opinions, conclusions or reports; (d) specify the audit objectives and the tests necessary to meet them; (e) identify key management systems and controls and carry out a preliminary assessment to identify both their strengths and weaknesses; (f) determine the materiality of matters to be considered; (g) review the internal audit of the audited entity and its work program; (h) assess the extent of reliance that might be placed on other auditors, for example, internal audit; (i) determine the most efficient and effective audit approach; (j) provide for a review to determine whether appropriate action has been taken on previously reported audit findings and recommendations; and (k) provide for appropriate documentation of the audit plan and for the proposed fieldwork.
2.1 Key Requirements

The key requirements of this chapter are: Each audit inspection visit should be carefully planned and the size of the team and length of the visit adjusted to reflect the audit risk of the particular local government The Permanent and Current Files should be carefully maintained to document all key aspects of the audit inspection and act as a guide for future audit visits An Audit Planning Sheet (see Annex A to this Chapter) should be develop as a guide for the audit, provide a common purpose for the team and to form the basis of allocating jobs/activities to team members (with time budgets) Audit activities should be allocated with the aim of enriching the knowledge of all team members The local government should be informed in adequate time of the date of the audit and the names of the audit team members The Zonal Coordinator should review and sign off the Audit Planning Sheet, the Current and Permanent Files.
2.2
Purpose of Audit Planning
Audit planning and the preparation of audit plans is important because it: (a) Establishes the way in which we will achieve our objectives. (b) Assists us to direct and control the work. (c) Helps to ensure that we devote sufficient attention to critical aspects of work. (d) Helps us to ensure that we complete our work efficiently and on time. The overall audit planning process is a cascade of elements, as follows: Annual Audit Plan | | Quarterly Team Work Allocations | | Operational Team Planning
2.2
Annual planning
An annual work plan is produced each year for the Office of the Auditor General for Local Governments. This includes a monthly plan with the planned activities for each Directorate and, in addition, quarterly plans for each directorate. The main audit activities include: quarterly visits to each of the 57 local governments annual statutory report on the 57 local governments
reviews of the audits of the 20 Local Government Education Authorities and allied agencies and production of annual report annual staff/salary verification exercise (August) and monthly follow-up capital projects inspection exercise (March) pension audit on a continuous basis. The Office of the Auditor General Local Governments annual work plan is printed and this is made available to the Governor, Public Accounts Committee of the State House of Assembly, State Ministry of Local Government & Chieftaincy Affairs, the Chairs of the local governments and other stake holders on local government matters.
2.3
Quarterly Team Work Allocations
The Director of Evaluation and Reporting writes to each local government with the dates of commencement of the next quarterly audit at least a month before the planned commencement. The Director of Evaluation and Reporting agrees the modality of audit for the next quarter and determines the audit teams and the local governments that they will visit in the next quarter. Quarterly plans are produced and posted for the audit of the 57 local governments, indicating the Zonal Coordinators, the Team Leaders and Auditors and the local governments that they will audit during the quarter. Planning different sized local government Local governments vary considerably in size with the largest being nearly three times the size of the smallest. In addition, to the risk assessment audit staff should be allocated to the different local governments on the basis of their size and the level of competence of the team members. The larger local governments may be audited with a team of four auditors rather than the normal team of three auditors (including the Team Leader). Where the risk is high and so the level of audit work more demanding the length of the audit may also be extended to three weeks rather the usual two. This is decided by the Director of Evaluation and Reporting. It is usual to provide each audit team with one rural (usually smaller) and one urban (usually larger) local government to audit. Thus the team can spend more time on the larger council and less time on the smaller local government. Risk Model To determine the level of resources or staff needed to undertake each quarterly audit inspection visit, it is necessary to undertake a review of the risks associated with each local government and so the time needed to complete the audit. The type of information required to undertake this evaluation includes: The size of the IGR (from Cash Flow, Statement 1) Total Expenditure (Statement 5 Revenue & Expenditure). The quality of internal financial control extent to which rules and regulations are followed in practice, bank reconciliations done on time? Staff vacancies? Quality of the Council Treasurer? see Chapter 3 of this manual for further guidance
The quality of the Internal Auditor The audit opinion of the Auditor General Local Government in the last statutory audit report (did the financial statements show a true and fair view. Whether the local government is urban or rural.
The four factors can then be combined to provide an overall assessment of risk: Risk factor
Size of IGR (in Nmillions) Volume of expenditure (in Nmillions) Quality of internal financial control Quality of the internal auditor Previous audit opinion
High score 3
More than 200 More than 750
Medium score 2
15 - 200 (2) 300 - 750 (2)
Low score 1
Less than 15(1) Less than 300(1)
Poor internal control (3) Poor quality internal auditor (3) Financial statements do not show true and fair view (3) Highly urbanised local government (1.5)
Medium internal control (2) Medium quality internal auditor (2)
Good quality internal control (1) Good quality internal auditor (1) Financial statements show true and fair view (1)
Urban or rural local government *
Medium (1)
Highly rural local governments (0.5)
*This criteria only scores half the scores of the others. The scores for each factor are then added together to provide an overall risk score. For example: Size of IGR = N150millions Volume of total expenditure = N8000millions Quality of internal financial control = poor Quality of the internal auditor = medium Quality of Previous audit opinion = qualified Quality of internal financial control = poor Quality of internal financial control = poor It is an urban local government = urban TOTAL SCORE Score 2 Score 3 Score 1 Score 2 Score 3 Score 1 Score 1 Score 1.5 14.5
The staff and time spent at each local government is then guided by the following: High risk - score of 14 to 16.5 three week visit and/or four auditor team
Medium risk score of 6 13 Low risk score of 5 or below
two week audit visit (three auditor team) one week audit visit (three auditor team)
Thus the example above with a total score of 14.5 would be considered high risk and so deserve a three week inspection with four auditors (including the team leader). As a result of a low overall assessment of risk, a reduction in substantive testing sample sizes may be appropriate (see Chapter 4 Performing Audit Inspections). This will allow the audit to be completed in less time.
3.3 Operational Team Planning

Operational Team Planning involves planning for audit visits to individual local governments. This is undertaken by the relevant Zonal Coordinator and the Team Leader reviewing the Permanent Audit File and holding discussions with the Team Leader responsible for the local government in the previous quarter. The week before the quarterly inspection audits are due to start, the Zonal Coordinators write to the local governments of their zone to introduce the next audit team and propose the time of the Audit Entry Meeting. The object of Operational Team Planning is to identify issues which impact upon the approach to the audit inspection and which could influence the audit strategy and audit judgments. The initial review should normally involve consideration of the following: Previous quarters audit report Outstanding issues from the previous quarter Correspondence/knowledge of events since the previous audit The level of action taken by the local government on the findings from the previous quarter.
Each local government is visited for an audit inspection during each quarter. The audit teams consist of a Team Leader and two or three auditors. The audit teams are rotated so the Team Leaders and other auditors visit a different local government in each quarter. In addition, the audit teams are rotated so that the Team Leaders supervise different staff each quarter. A permanent file is maintained for each local government with the financial statements and the annual audit reports and other vital documentation. A current file is developed for each audit visit. A meeting is held before each quarterly visit between the Team Leader for the previous quarter and the Team Leader who will lead the next visit. The Permanent File is reviewed and any outstanding issues are highlighted. The end product of the planning process is the Audit Planning Sheet (see Annex A to this Chapter). This outlines the strategy for the audit assignment as a whole. The preparation of the Audit Planning Sheet is be the responsibility of the Zonal Coordinator, supported by Team Leaders. The timing of audit planning and the extent of the planning required will vary, depending upon
the size and circumstances of the Local Government. Identification of Auditable Activities The core of the operational audit planning process is deciding what to audit from the many systems and activities of the local governments. This requires good knowledge of the Local Governments business and a high level of professional judgment. Auditable activities consist of those subjects, which are capable of being defined and evaluated and may include: Systems such as revenue, purchasing, payments etc Cashbook, Departmental Expenditure Vote Account (DEVA) Major contracts and projects Financial Statements. Auditors should be encouraged to use their judgment in the field to determine whether a particular area needs to be audited, considering any information that might come to their knowledge during their audit visit. However, this should be discussed with the Team Leader and perhaps the Zonal Coordinator. For a typical local government the following systems and processes should be subject to audit verification during each quarterly inspection audit visit: CASH & BANK ACCOUNT Cash and bank accounts Cash receipts treasury receipts, bank tellers, bank statements Cash book payment vouchers, cheques, bank charges CASH COLLECTION SYSTEM Revenue receipts Departmental Vote Revenue Account (DVRA) Different revenue streams statutory allocations, state grants (including project funds), internally generated revenue, LASSA, Wharf fees and Land Use Charges Controls over revenue receipt books DIRECT BANKING SYSTEM Bank tellers and bank statements
Revenue consultants - contracts Revenue consultants payments OTHER REVENUE Revenue Committee Property rentals Areas of Revenue EXPENDITURE AUDIT Payment vouchers to cashbook and Departmental Vote Expenditure Account (DVEA) Schedule of expenditure Schedule of un-presented payment vouchers EXAMINATION OF PAYMENT VOUCHERS Regularity of payment vouchers ADVANCES LEDGER Prepare schedule of advances not deducted from salaries DEPOSIT LEDGER Prepare schedule of deposit balances, VAT, Withholding Tax etc INVESTMENT LEDGER Movements, interest, records FINANCIAL STATEMENTS Statement of assets and liabilities Cash flow statement Notes to the accounts FOLLOW-UP Follow-up of the level of action taken by the local government on the audit findings
from the previous quarter. A more complete list of systems, activities and auditable objects may be found in the Audit Guide in the Annex to Chapter 4.
Production of the Audit Planning Sheet In preparation for the quarterly planning meeting between the Zonal Coordinator, Team Leader and other team members, the Team Leader may develop a draft Audit Planning Sheet (see Annex A to this Chapter). This details the work that will be undertaken at a specific local government for a particular quarter. It forms the basis for the allocation of audit work to each of the team members at the quarterly meeting. This document sets out the details of each audit assignment, including the objectives and notes of any issues for the auditor to consider. The purpose of the Audit Planning Sheet is to ensure that the exact terms and details of the audit have been agreed and understood by all members of the audit team. Management at the local government will be asked to provide comments on the document so that any thoughts or concerns can be built into the audit at this stage of the planning process, thus ensuring that the mutual benefit of the complete audit procedure will be maximised. The document must be agreed and authorised prior to commencement of the audit work on site by the Zonal Coordinator/Team Leader, and must be retained in the current file at the end of the audit. Auditors should also consider undertaking the following background research where deemed necessary. It should be clearly noted that this list is not exhaustive: Reviewing LGA minutes; The 'Financial Memoranda' Any relevant legislation; Any LGA policy documents Other documentation considered relevant and appropriate to the audit e.g. code of conduct for councillors and officers. Therefore, the purpose of producing an Audit Planning Sheet is to provide: A well constructed plan encompassing the scope of an assignment to achieve audit objectives A basis for assigning work to auditors A record of work done A comparison of work done with work planned the
The basis for a review of the future Audit Team Workload A means for management of the Office of the Auditor General Local Governments to supervise each audit adequately and review progress.
The Audit Planning Sheet (see Annex A to this Chapter) may require amendment in light of 'on-the-job' experience as the audit progresses. If this is found to be necessary, this should be confirmed with the Zonal Coordinator. Where an Audit Planning Sheet has been fine-tuned during the course of an audit, this must be fully and properly documented, and on completion of the audit, a final version of the Audit Planning Sheet must be produced, authorised (by the Zonal Coordinator) and retained in the Current File to inform future audits.
Annex A AUDIT PLANNING SHEET

LOCAL GOVERNMENT PREPARED BY TEAM LEADER DATE REVIEWED BY ZONAL COORDINATOR DATE
AUDIT AREA
AUDITOR
TIME BUDGET
ACTUAL TIME SPENT
COMPLETI ON DATE
Cash book COMMENTS Vote Book COMMENTS
COMMENTS
OFFICER Zonal Coordinator Team Leader Auditor 1 Auditor 2 Auditor 3
SIGNED BY:
DATE
AUDIT PLANNING SHEET (Continued)

AUDIT AREA AUDITOR TIME BUDGET ACTUAL TIME COMPLETI ON
SPENT
DATE
Chapter 3: Evaluating and Testing Internal controls

3.3 Study and Evaluation of Internal Control 3.3.1 The field standards include: The auditor, in determining the extent and scope of the audit, should study and evaluate the reliability of internal control. The following paragraphs explain internal control as an auditing standard. 3.3.2 The study and evaluation of internal control should be carried out according to the type of audit undertaken. In the case of a regularity (financial) audit, study and evaluation are made mainly on controls that assist in safeguarding assets and resources, and assure the accuracy and completeness of accounting records. In the case of regularity (compliance) audit, study and evaluation are made mainly on controls that assist management in complying with laws and regulations. In the case of performance audit, they are made on controls that assist in conducting the business of the audited entity in an economic, efficient and effective manner, ensuring adherence to management policies, and producing timely and reliable financial and management information. 3.3.3 The extent of the study and evaluation of internal control depends on the objectives of the audit and on the degree of reliance intended. 3.3.4 Where accounting or other information systems are computerized, the auditor should determine whether internal controls are functioning properly to ensure the integrity, reliability and completeness of the data.
3.1
Key Requirements
The key requirements of this chapter are: Key internal controls should be identified and tested Key internal controls should be evaluated to decide whether we can rely on them and so avoid the need for 100% substantive testing The results of testing key controls should be discussed with the Zonal Coordinator and the strategy for sampling of transactions agreed and documented in the Current File.
3.2
Responsibility for Internal Control
It is the responsibility of the management of local governments to keep complete and accurate operational and accounting records, which assist in: Controlling departmental activities Safeguarding assets Preventing or detecting errors, frauds or other irregularities Preparing financial statements Complying with legislation Achieving the local governments objectives.
Management therefore needs to maintain internal controls designed to ensure the completeness and accuracy of records and the validity and reliability of the entries they contain. The internal control procedures are documented in the Financial Memoranda for Local Government (current edition 1998) and the Guidelines on Administrative Procedures for Local Governments (2011). Limitations on the Effectiveness of Internal Control Any system of internal control is always subject to the possibility of errors. No internal financial control structure, however elaborate, can guarantee efficient administration, completeness and accuracy of records or be full-proof against fraud; especially when those holding positions of authority or trust are involved. For instance, in the following situations, internal control measures will prove to be ineffective: segregation controls are avoided by collusion between officials authorisation controls are abused by those who sign payment vouchers management (for example, the Chair or Council Treasurer) over-ride key internal controls selection and training may improve the competence and integrity of personnel operating the system, but these qualities may change due to pressures exerted from within or outside their working environment errors occur due to fatigue of staff, misinterpretation of regulations, carelessness or misunderstandings. The Auditor's Use of Internal Control The auditor's objective in evaluating and testing controls is to determine the degree of reliance
that may be placed on the accounting and other controls. If the auditor is reasonably assured that the internal controls are effective, the extent of compliance and substantive tests may be reduced and 100% vouching may not be necessary. However, due to the limitations in any system of internal control, it will always be necessary to perform some substantive testing.
3.3
Types of Internal Control
The following are some examples of types of internal control: Organisational control - The organisation chart structure for LGAs is uniform. It effectively defines and allocates responsibilities, reporting lines, delegation of responsibility and authority. To back this up, Local Governments also have in place a schedule of Authorised Signatories. Segregation of duties - This is separation of duties or responsibilities that would, if combined by one individual, enable that individual to record and process a complete transaction. Segregation reduces the risk of manipulation or error and increases the degree of checking as the work of an officer checks or is complementary to that of another. As a rule, separate officers or sections should be responsible for the following tasks: authorisation of local purchase orders or payment vouchers receipt or custody of the goods or services maintenance of the purchase ledger, cash book and other accounting records.
Physical control Such controls are primarily concerned with the custody of assets and involve procedures and security measures designed to ensure that access to assets is limited to authorised personnel. Supervision Any system of internal control must include supervision of the routine transactions and operating procedures by responsible officers. Authorisation and approval All transactions require authorisation or approval by an appropriate, responsible officer. Authorisation limits have been established via the Financial Memoranda for local Government (1998). Arithmetic and accounting These controls operate within the recording function to check that transactions to be recorded and processed have been authorised and are complete and accurate. These controls include checking arithmetical accuracy (recomputing/casting), maintaining and checking reconciliation statements, document sequence and count checks. Personnel Lagos State Government has put policies in place to ensure that a formal process has been established to assist and encourage personnel with Accounting and Audit functions to attain the necessary capabilities to fulfill the responsibilities of their posts. It is a fact that the proper functioning of an operational and/or financial system depends on the competence and integrity of those operating it, and therefore qualifications, selection, training and the personal characteristics of officers involved are important features to be considered in establishing any control mechanism. Identification and Evaluation of Key Controls A review of the accounting and internal control systems should be performed to identify the key controls, which exist to prevent or detect material misstatements. .
Key controls are those controls, which are integral to the effective system as a means of preventing or detailing material misstatements. By identifying and testing the key controls, it is not essential to test all the internal controls in a system. Controls will often relate to the authorisation of a transaction, or the evidence of review of a process. A list of some of the key internal controls in local governments is included as Annex A to this Chapter. As a result of identification and evaluation of key controls, the level of risk of each of the systems/activities subject to audit testing should be assessed. Considerations, which influence the level of risk will include, for example: The control environment are key controls applied? Is internal audit well performed? The nature and amount of the transactions and balances involved what is the quarterly level of revenue and expenditure? The results of the previous audits an adverse audit opinion (not true and fair) will result in high risk and 100% substantive testing. The nature of any changes to the accounting and internal control systems since they were previously tested. Vacancies of key staff, for example, second signatory.
3.4
Tests of Control (compliance testing)
Tests of control are performed to obtain audit evidence that the key controls on which reliance is sought operate effectively. This means that the controls exist and have effectively operated throughout the reporting period. By testing the identified key controls it is not necessary to test all the controls present in the system as these provide the controls, which are integral to the effective operation of the system. Tests of control may include: Corroborative enquiries (third party confirmations) about, and observation of, internal control functions Inspection of documents supporting controls or events to gain audit evidence that internal controls have operated properly, for example verifying that a transaction has been authorised or a reconciliation has been approved Examination of evidence that management has carried out its own reviews, for example minutes of Executive Committee meetings at which audit reports are reviewed and corrective actions decided on Re-performance of control procedures, for example reconciliation of bank accounts, to ensure they were correctly performed by the responsible officer
When collecting evidence about the effective operation of internal controls, relevant considerations are:
How they were applied? Were consistency applied during the period? Who applied them?
If a deviation is identified, specific enquiries must be made to identify whether the deviation was isolated (these enquiries may include additional testing) and whether there were any effective alternative sources of control during the period. Provided that the additional testing confirms that the deviation was isolated or that a mitigating control proved effective, reliance can still be placed on the effective operation of the control before and after the period of deviation. If errors or weaknesses are identified in the control system the risk of the specific audit area should usually be revised as follows: Original level of risk Low Medium 1-3 errors Increase to medium risk Increase to high risk 4 or more errors Increase to high risk Increase to high risk
The effect of these revisions may be to increase level of substantive testing by increasing the sample sizes. The output of testing the key internal controls will be an assessment of the audit risk for each of the major systems which are subject to audit. In each case the system should be assessed as being of high medium or low risk. This risk rating will act as a guide to the level of transaction/substantive testing that is to be undertaken and may be documented in the form of a table as follows: System/activity
Cash book Revenue and Expenditure Abstracts Vote books Federal Government Grants Continued
Risk assessment
High Low Medium Low
Comments
This risk rating should be documented in the Current File and be signed off by the Zonal Coordinator.
3.5
Sample Sizes for Transaction Testing (substantive testing)
Transaction testing may be reduced where the key internal controls have been found to be operating reliably over the period covered by the audit. In this case sample sizes for substantive testing may be adjusted as follows: Level of risk High Medium Low Sample size 100% 100% above say N100,000 and 50% below this level 100% above say N100,000 and 25% below this level
A justification for the reduced level of substantive testing must be included within the planning memorandum. In addition, care should be taken that contracts etc are not split into several payments to ensure that transaction is subject to a reduce likelihood of being tested.
Annex A
LOCAL GOVERNMENT - KEY INTERNAL CONTROLS Budgeting and accounting

1.1 A suitable, comprehensive budget (including revenue, capital and aid receipts) is agreed by the Council and the Chair, before the start of the year, with figures showing the previous year's expected expenditure. 1.2 Vote Registers (DVRA and DVEA) are properly maintained to ensure that all receipts and payments are properly accounted for. 1.3 Monthly and quarterly financial statements are produced within one month of the end of each month and submitted to the Office of the Auditor General for Local Governments. 1.4 A suitable, comprehensive Chart of Accounts and budget classification (developed by the State Ministry of Economic Planning & Budget) is adopted by each local government. 1.5 Annual financial accounts are prepared in accordance with instructions issued by the Office of the Accountant General of the Federation (FAAC 2005), they are audited within six months of the year-end and show a true and fair view. 1.6 Sanctions for expenditure outside the official authorised budget or appropriations are adequately enforced by the Treasurer, the Chair or the Council.
2 Revenue
2.1 An annual listing of authorised tax rates and other fees and charges should be publicly available. 2.2 All cash revenue should be receipted and promptly banked intact.
2.3 Income records and receipts should be independently reconciled to the bank statements on a regular basis and inconsistencies adequately investigated. 2.4 A monthly summary of all income received (with comparisons to previous year and the budget) and 'arrears of revenue' return should be provided to the Council (or Revenue Committee) and the Auditor-General for Local Government.
3 Expenditure controls
3.1 3.2 All payments are properly authorised and certified by the internal auditor An official invoice or receipt should be retained for all expenditure.
3.3 There should be an approved list of suppliers and for the more frequent purchases an approved price list.
3.4 Competitive tendering should be used for all significant orders. Depending on the size of the order the following should be used: obtaining three written quotations formal tendering where suppliers have to submit sealed detailed bids for the work when the goods or services are expected to cost N500,000 (half a million) or above approval is obtained from the State Governor for projects of over N35 million.
3.5 Proper segregation of duties should be maintained, the following three tasks should be undertaken by separate staff and/or sections: authorisation of local purchase orders or invoices for payment receipt or custody of the goods or services maintenance of the purchase ledger, cash book and other accounting records.
3.6 Formal bank reconciliations should be undertaken by staff who are not responsible for maintaining the cash book at least once a month. The bank balances recorded on the bank statements should be clearly balanced to the amounts recorded in the cash books. Any differences should be investigated and cleared by senior officers.
4 Payroll
4.1 All posts and appointments should be authorised by the Local Government Service Commission for officers on GL07 and above or the Human Resource Officer for lower grade officers. 4.2 Changes between each periods payroll should be adequately explained and checked by a nominated officer. This reconciliation and the payroll, should be formally authorised. 4.3 There should be careful liaison between the relevant line department, the Council Treasurer and the relevant Local Government Service Commission. Records held by each of these sections should be carefully reconciled at least annually to ensure that an agreed list of employees is maintained.
5 Staff Advances
5.1 A listing of outstanding advances should be reviewed regularly (quarterly) by senior staff in each department and the Council Treasurer. Any unusual, late or large items should be investigated. 5.2 Last pay certificates should be prepared promptly and completely for all staff leaving. Any outstanding advances should be deducted from the final pay.
6 Stock and fixed asset records

6.1 Independent stock takes should be undertaken at least once a year and, additionally, whenever there is a change of stock keeper. 6.2 An appropriate Assets Register should be maintained of all fixed assets (land, buildings, vehicles, IT equipment, furniture etc). There should be checks at least once a year that all the assets are clearly accounted for and are held securely. 6.3 The disposal of all public assets is subject to the approval of the Local Government Executive Committee and the Auditor General for Local Governments. Public auctions should be held for all significant asset disposals.
Chapter 4 Performing Audit Inspections

3.2 Supervision and Review 3.2.1 The field standards include: The work of the audit staff at each level and audit phase should be properly supervised during the audit, and documented work should be reviewed by a senior member of the audit staff
The following paragraphs explain supervision and review as an auditing standard. 3.2.2 Supervision is essential to ensure the fulfilment of audit objectives and the maintenance of the quality of the audit work. Proper supervision and control is therefore necessary in all cases, regardless of the competence of individual auditors. 3.2.3 Supervision should be directed both to the substance and to the method of auditing. It involves ensuring that: (a) the members of the audit team have a clear and consistent understanding of the audit plan; (b) the audit is carried out in accordance with the auditing standards and practices of the SAI; (c) the audit plan and action steps specified in that plan are followed unless a variation is authorised; (d) working papers contain evidence adequately supporting all conclusions, recommendations and opinions; (e) the auditor achieves the stated audit objectives; and (f) the audit report includes the audit conclusions, recommendations and opinions, as appropriate. 3.2.4 All audit work should be reviewed by a senior member of the audit staff before the audit opinions or reports are finalised. It should be carried out as each part of the audit progresses. Review brings more than one level of experience and judgment to the audit task and should ensure that: (a) all evaluations and conclusions are soundly based and are supported by competent, relevant and reasonable audit evidence as the foundation for the final audit opinion or report; (b) all errors, deficiencies and unusual matters have been properly identified, documented and either satisfactorily resolved or brought to the attention of a more senior SAI officer(s); and (c) changes and improvements necessary to the conduct of future audits are identified, recorded and taken into account in later audit plans and in staff development activities.
4.1
Key Requirements
The key requirements of this chapter are: All audit work should be adequately planned and an Audit Planning Sheet completed Letters of commencement and introduction should be sent on time A suitable Entry Meeting should be held and minuted Key internal financial controls should be documented, evaluated and tested A suitable level of substantive testing should be undertaken in line with the audit guide A suitable Exit Meeting should be held and minuted with the Team Leader and Zonal Coordinator in attendance The Inspection Report should be reviewed by the Zonal Coordinator and signed off by the Director of Evaluation & Reporting Follow-up and post-audit review should be undertaken.
4.2
Preparation for an Audit
Planning is critical to the success of each audit assignment. The aim is to ensure that the planned work will efficiently satisfy the audit objectives. Adequate time must be set-aside for this stage, which identifies priorities, objectives, and allocates staff time to each activity. The Team Leader will undertake the preparation for an audit including the development of Audit Planning Sheet, with input from other team members and authorisation by the Zonal Coordinator. Research It is essential for auditors at this stage to gain a good understanding of the local government and its operations. Sources of information will include, but not necessarily be limited to: Audit report for the previous quarters inspection visit The Permanent File, Current File and working papers (including the extraction of follow-up points from the previous quarter audit inspection) Reference Library Relevant legislation (see Appendix A) Reports to Public Accounts Committee (Local) of the State House of Assembly Financial and any other relevant regulations in addition to the Financial Memoranda and the Guidelines on Administrative Procedures for Local Governments Previous years financial statements and report of the Auditor General for Local Governments
Financial statements for the previous months/quarters for the current financial year Organisation charts and contacts for key staff at the local government.
At the end of this stage, the auditor will be in a position to form a view about: Systems boundaries or limitations Identification and assessment of risks Identification of key personnel staffing structures and reporting lines.
4.3
Phases of Audit
Quarterly inspection audits will generally consist of eleven phases, with supervisory review occurring at appropriate intervals: Letter of Commencement sent by the Head of Evaluation & Reporting informing the local government of the audit (about a month before the start of the audit) Letter of Introduction from the Zonal Co-ordinator or the Team Leader (about a week before the start of the audit Development of Audit Planning Sheet Entry meeting Evaluation of internal controls Substantive testing Exist meeting Report of the Inspection Audit Response from the local government and appraisal of the response Follow-up Post-audit review.
4.4
Commencement Letter
Approximately a month before an audit is scheduled to begin, the commencement letter will be sent by the Director of Evaluation and Reporting to the Chair of the LGA being audited and copied to the members of management who may be affected by the audit. The letter will notify them of the assignment and it will indicate that an entrance briefing will be conducted prior to the audit. A point of contact and phone number of the audit office will be Included.
4.5
Letter of Introduction
A telephone call by the Zonal Coordinator (or introductory letter) should follow the planning.
This will schedule an entrance meeting to begin the exchange of information that will be needed during the audit.
4.6
Audit Entry Meeting
At the start of the audit visit an entry meeting is held by the Zonal Coordinator and Team Leader with key officers and management staff of the local government including the following: Executive Chair Council Manager Council Treasurer Heads of Department.
This agenda for this meeting should include: introduction by the team leader outstanding issues from the previous audit information from the Office of the Auditor general for LocalGovernments objectives of the exercise significant developments at the local government providing documents and records that will be needed for the audit (previously listed in the Directors letter).
The entry meeting ensures that management of LGA endorses the audit and allows the auditor to obtain critical information for the audit brief, as well as demonstrating common courtesy. The meeting will establish, among other things: Audit and local management concerns Client expectations in relation to the outcome Any obvious local management and/or audit or operational issues arising at this stage, which might impact on the work to be undertaken Any known or perceived current and future pressures facing the audit.
It will confirm the auditor's understanding of systems boundaries and objectives and will establish: The best timing for the audit for both the LGA and the Audit Team The key contact(s) within the authority The audit closure arrangements and interim/final reporting lines
During the entry meeting, the audit Zonal Coordinator/Team Leader should explain the audit process, identify departmental heads' concerns and suggestions for objectives, and generally
open the channels of communication that are necessary for a successful engagement. The other members of the audit team should also attend this meeting. Formal minutes should be documented for the Entry Meeting and copies sent to all the officials who attend.
4.7
Evaluation of Internal Controls
Auditors should identify and evaluate the key internal controls for each of the financial systems which they review (see the checklist in Annex A to Chapter 3). The key internal financial controls should then be tested to ensure that they are operating reliably over the period subject to audit. Substantive testing may be reduced, with the use of audit sampling, where the internal controls are operating reliably (see Chapter 3 for more details). The reliance levels are interpreted below: High control risk arises if controls are weak or if no reliance is to be placed upon the internal system and no tests of control are to be performed. 100% substantive testing should be introduced. Medium control risk may be applied to an audit area where some internal control features exist on which reliance can be placed although strong controls cannot be applied to all aspects of the audit area. Reduced testing my be appropriate if agreed by the Team Leader and Zonal Coordinator. Low control risk is appropriate if a strong and reliable internal control system appears to exist and their reliability is confirmed by testing of the controls (for example, that proper bank reconciliations are undertaken each month and reviewed by the Council Treasurer). Audit sampling of transactions (payment vouchers etc) should be agreed with the Team Leader and Zonal Coordinator. Control Recommendations If the internal financial controls are not operating properly and reliably, specific recommendations should be developed to introduce the required controls. These recommendations should be reviewed by the Team Leader and Zonal Coordinator, reported at the exit meeting and included in report of the inspection visit.
4.8
Substantive Testing
Substantive tests are performed to obtain sufficient and appropriate audit evidence that the transactions and balances are accurate, authorised and regular. They are also necessary to identify any possible errors, mistakes or irregularities. Substantive tests include analytical review, observations and enquiry (e.g. the confirmation that a staff list is accurate by tracing employees), re-computations and inspections (e.g. physical inspection of items in store). Substantive tests of details are often the most appropriate way to test compliance with relevant laws and regulations.
Level of Substantive Testing The number of substantive tests may be reduced where tests of control provide satisfactory evidence as to the effectiveness of the internal financial control systems. However, a minimum level of substantive tests should be performed for each material class of transactions and balances. Audit sampling is described in Chapter 3. Audit Query Audit queries may be raised by staff of the Office of the Auditor General for Local Governments, but queries may also be raised by the internal auditor of a local government, the Council Treasurer or the Council Manager. If they are over-ruled by the Chair of the local government they should be referred to the Audit Alarm Committee (if it exists) and the Office of the Auditor General for Local Governments. Schedules 1 and 2 of the Guidelines on Administrative Procedure for Local Governments (2011, pages 44-46) details the irregularities or offences which may result in an audit query being issued, the time limit for a reply to the query and the sanctions which are to be applied. If an audit query is needed to be raised during an audit, the Team Leader should discuss the issue with the Zonal Coordinator. The Zonal Coordinator should review the relevant sections of the file and initial and date them. The audit query is written and signed by the Team Leader and sent to the Executive Chair with a copy to Council Treasurer or other head of department who is responsible for the particular area. The audit queries are reported during the Exit Meeting (see below) and copies are also sent with the Audit Inspection Report and signed off by the Head of Evaluation and Reporting.
4.9
Exit Meeting
Auditors should keep management informed of how the audit is progressing and discuss possible findings as these are identified throughout the audit. This practice helps ensure that the results of an audit are accurate. It promotes a team approach by actively involving local government management in developing solutions to issues identified by the auditors. Early discussion of possible findings also allows local government management to begin to introduce any corrective action that is needed. At the end of the audit fieldwork, an Exist Meeting should be held with the senior management of the local government. At this meeting the Team Leader or Zonal Coordinator will review the work of the audit team and provide details of all audit queries and other audit findings. The local government management may provide responses at this stage or after they have received the formal written Audit Inspection Report and a written copy of any audit queries. The following officials will attend the Exist Meeting: Executive Chair Council Manager Council Treasurer
Heads of Department Zonal Coordinator Team Leader. The other members of the audit team should also attend this meeting. Formal minutes should be documented for the Exit Meeting and copies sent to all the officials who attend.
4.10 Audit Inspection Report

After the fieldwork' for the quarterly inspection audit is complete, a written Audit Inspection Report will be prepared and issued using the Office of the Auditor General for Local Governments standard format. This report will include an overall opinion and provide details about any significant issues, or findings, identified during the audit. Findings should be presented by identifying the issue, describing the risks and the corrective action to be taken by the local government. The Audit Inspection Report should include detailed recommendations to improve internal financial control, details of any irregularities identified and any audit queries raised should be sent with the report. Any audit opinions or conclusions should be justified with clear evidence from the audit testing. The AGLG or the Director of Evaluation and Reporting signs routine reports for audits. These will be issued to the Executive Chair, Council Treasurer and Council Manager (with the fourth copy for the audit file). These officials are in a position to take corrective action or ensure that any necessary changes are made by drawing the attention of other heads of department are necessary. A formal written response to the Audit Inspection Report should be received within two weeks of the Exit Meeting. Response from the local government and appraisal of the response Procedures that should occur, as the audit is wrapped-up include: Doing an overall review of the working papers to see that all procedures are complete, working papers are signed-off Comparing the planned and actual completion dates and providing explanations for any material variances Reviewing the result of the audit planning and lessons for future inspection visits Submitting the working papers for filing.
Some of the above tasks may be combined with a post-audit review when the Director of Evaluation and Reporting, the Zonal Coordinators and the Team Leaders will review the results of the quarterly inspection audits to ensure that they were completed as required and the necessary steps are taken for future audits.
4.11 Follow-Up
The Director of Evaluation and Reporting will follow-up to ascertain that appropriate action is taken on reported audit issues and findings. Follow-up is a process by which auditors determine the adequacy, effectiveness and timeliness of actions taken by local government management on reported audit findings. The Director of Evaluation will determine the nature, timing and extent of follow-up and Reporting, to be completed usually within one year of issuing the final report or shortly after the last completion date for management's action plans has occurred. Auditors will determine what corrective action was taken and if it is achieving the desired results.
4.12 Audit Control and Review

In order to ensure consistency and compliance with professional standards and audit procedures, it is essential that all audit work is effectively overseen at all stages of the process. The audit files and reports should be reviewed and signed off by the Team Leader Zonal Coordinator at each stage and particularly before the Exit Meeting and again before the audit report is issued. This process is designed to ensure that: All work undertaken complies with the requirements of this manual and professional good practice Work programmes are completed unless deviations are both justified by the findings of the work undertaken and authorised by the Zonal Coordinator Audit files are complete and properly structured Appropriate audit techniques have been used All working papers adequately support the findings, conclusions and recommendations of the report to which they relate The related audit report is complete, accurate, objective, clear, concise, constructive and timely The objectives of the audit assignment are met within the allocated time budgets or appropriate time variations were authorised.
The Zonal Coordinator's overseeing of the audit must be evident from the working papers. The audit management review process must be evidenced by the reviewer initialling and dating the appropriate working papers. Issues raised during the review process should be adequately recorded and cleared before final sign-off.
4.12 Post Audit Review

In April to June each year a post audit review is undertaken by the Director of Evaluation and Reporting. This reviews the inspection visits of the four quarters of the previous years, considers the quality of the work which was undertaken and documents any lessons to be learnt for future years.
Annex A
AUDIT PROGRAMMES & CHECKLISTS

These audit programmes and checklists provide comprehensive guide for carrying out routine examination of accounting books and records, procurement, verification of projects and financial statements in routine field audit work.
SECTION I: MAIN BOOKS OF ACCOUNT A - Cashbook 1. Main Activities Involved The cashbook is the main analytical book where each money received or each amount paid is recorded. 2. Control Objective To ensure that the receipts and payments made by the local government are correctly recorded as provided for by financial memoranda chapter 19. 3. Risks The risk for inaccurate cashbook postings is that the actual receipts or payments may be under or over stated thereby rendering the account balances at the end of a reporting period unreliable. 4. Records Required at Audit (a) cashbook (b) payment vouchers (c) receipt vouchers (d) bank reconciliation statements (e) bank certificates 5. Estimated Time Budgets
Time Allocated Actual Time Spent Variance Explanation of the variance
6. Audit Programme
Ref 1. Audit Programme Tasks Post all payment vouchers on the credit side of the cashbook. Post all receipt vouchers on the debit side of the cashbook. 2. 3. Record any unpresented payment or receipt voucher and consult the cashier for its whereabouts Where deductions are made on payment or salary voucher and the payment is made by cash, the gross amount must be entered as the payment in the cash column on the credit side and a treasury receipt must be made out for the deduction which is then entered as a receipt in the cash column on the credit side of the cashbook. Ensure that when a cheque is drawn to obtain cash from the bank, the amount of the cheque will be entered in the bank column on the payment side of the cashbook and if the cash is received in the Treasury on the same day, the identical amount shall be entered in the cash column on the receipt side if the cashbook. These two entries should be marked as contra At the beginning of each month, the cash in hand or at bank at the end of the previous month shall be brought forward to the receipt side of the cashbook.
4.
5.

6.
At the end of each month, the difference between the totals of the receipts columns and the totals of the payment columns, is the amount of the cash in hand which figure shall be entered on the credit side of the cashbook, thus bringing the two sides into agreement. Should, however, the bank payments total exceed the receipts total, the balance is entered on the debit side of the cashbook and is the amount, by which the bank account is overdrawn. At the end of each month, a bank reconciliation statement must be produced. The transaction according to the bank statement must be checked against the entries in the Local Governments cashbook and the two records reconciled. The format for the preparation of bank reconciliation is attached at the end of this Guide. Scrutinize bank paying-in-slip, ensure that they have been properly receipted by the bank and verify any alterations made thereon. Ensure that Treasury Receipts have been made out for and correspond with the details shown on paying-in-slips.
7.
8.
9.
B Revenue & Expenditure Abstracts 1. Main Activities Involved The Daily and monthly abstracts of revenue and expenditure provide an analysis of the financial transaction recorded in the cashbook and the journal under the various heads and sub-heads of revenue and expenditure and other accounts. 2. Control Objective To ensure that the financial transactions of the Local Government are done accurately, maintained and up-dated. 3. Risks Prone to inaccurate data and financial statements. 4. Records Required at Audit (a) Abstracts of Revenue (b) Abstracts of Expenditure (c) Payment vouchers 5. Estimated Time Budgets
6. Audit Programme
Ref Audit Programme Tasks
1.
Post all receipts and payments vouchers into the daily abstracts of revenue and expenditure under the various sub-heads and accounts quoting the relevant voucher numbers. For advances and deposits, ensure that the payment vouchers are posted to the relevant individual accounts in the advances and deposits ledgers as detailed in FM 23.2 in addition to being entered in the abstracts.
2.
At the end of every month, after all postings have been completed in the daily abstracts, post the monthly totals for each sub-head in the monthly revenue abstracts or monthly expenditure abstracts. The monthly abstracts totals of each sub-head should be posted against the Departmental Vote Revenue & Expenditure Accounts. Discuss any observation you might have with the appropriate Officials
3.
4.
C Vote Book
1. Main Activities Involved This audit programme covers the audit of Departmental Vote Revenue/Expenditure Account books. 2. Control Objective To ensure that all entries in the Vote Book reflect accurately the financial transactions of the Department. 3. Risks The key risk to the Department of poorly kept vote books is that all accounting data will be tainted and unfit for use for the preparation of financial statements. The underlying risks are: (a) incorrect information is recorded in the vote book, including the vote, details of approved estimates, re-allocation, supplementary provisions, imprests, etc. (b) entries in the vote book are not complete or inaccurate, and as a result commitments and payments may exceed the balance of available funds and overspending may occur. (c) the vote book is not promptly and properly reconciled each month with the Finance Departments records. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Vote Book; (b) Approved Budget Estimates (c) AISE/ Supplementary estimates; (d) Payment Vouchers. 5. Estimated Time Budgets
6. Audit Programme - Vote Book For each department conduct the following checks:
Ref Audit Programme Tasks
1.
Use the Budget estimates book and appropriate supplementary allocation provisions to confirm that the Vote Book pages correctly records the: vote account details, approved estimates, supplementary provisions, imprests and departmental warrants if any Confirm that a separate page has been opened for each expenditure item under the control of the department under review. Confirm that the entries are correct for both commitments and payments by checking the Vote Book entries against payment vouchers Confirm whether any of the votes are overspent. Confirm that every entry in the Vote Book is properly initialled.
2.
3.
4. 5.

6. 7. 8.
Confirm that the year to date balances have been calculated accurately by reproving the calculations. Confirm that all Departmental Heads and Subheads have been correctly entered. Confirm that the Vote Book has been properly and promptly reconciled each month with Daily & Monthly Abstract Ledgers maintained at the Treasury. NB Care should be taken to ensure that the Vote Book is not being written by merely copying the Finance Department statements.
SECTION II: REVENUES, RECEIPTING & BANKING A - Federal Government Grants 1. Main Activities Involved The audit covers transfer by the Federal Government of funds to the Local Government as Statutory Allocation. 2. Control Objective To ensure that the Local Government accounts for all transfer and that it applies and accounts for them in the correct manner. 3. Risks The key risks to the Local Government of poor control over Federal Government transfer are: (a) the Inadequate recording and accounting of grants (b) the late receipt of grants affecting the implementation of planned programmes (c) the incorrect use and application of grants to programmes. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Approved Estimates; (b) Bank Statements; (c) Revenue/transfer notifications from the Ministry ie Statutory Allocation Tables. (d) Daily & Monthly Abstracts of revenue; (f) Cash Book 5. Estimated Time Budgets
6. Audit Programme Conduct the following checks:

Ref Audit Programme Tasks Receipting and Accounting 1. 2. From the Estimates prepare a schedule of expected central government releases. From the Statutory Allocation Table obtain details of amounts released and the dates of those transfers and compare with 1 above From the appropriate cash book confirm the correct recording of the receipt of funds. From the bank statement confirm receipt of money.
3. 4.
5.
From the accounting records confirm the recording of the correct amount
B - Local Revenue Collection Locally Generated Revenues of a Local Government are derived from taxes, rates, Licence & fees, commercial undertakings, rent on local government properties and other miscellaneous revenues. 1. Main Activities Involved This audit covers the general collection of the above revenues, and should be applied to all specific revenue collection and receipting locations. 2. Control Objective To ensure that all revenue due to the Local Government is assessed and collected; that all revenue is promptly and accurately recorded; and that all revenue is promptly banked or handed over. 3. Risks The key risk to the Local Government of poor revenue collection is that undercollection and/ or underbanking of revenue will mean insufficient funds to provide the planned level of service delivery, and that inadequate safeguards exist to prevent fraud, embezzlement and losses. The underlying risks are: (a) that there is incorrect accounting and recording of revenues collected, resulting in the failure to record, or the under recording of revenue due to the Local Government. (b) that there is the incorrect or incomplete application of cash receipting and cashier procedures and controls as required by the Local Governments Financial Memoranda. (c) that cash collected, and therefore revenues of the Local Government are at risk due to poor physical controls over cash and the poor application of controls as required by the Financial Memoranda. (d) that revenue received through direct payments to the bank account are not adequately accounted for and so payees are not properly identified. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Revenue Registers (b) Revenue Collectors Cash Book; (c) Main Cash Book; (d) Daily Cash and Cheque Summaries (e) Register of Paying-in books; (f) Register of Receipt Books; (g) Paying-in Books/ Slips (h) Bank Statements and advices (i) Cancelled Receipts; (j) Job Description of Cashier; and
(k) Organogram. (l) Copies of demand notes (m) Check stubs (n) Executive Committee Minute Book (o) Funds Management Committee Minute Book (p) Asset Register (q) Contract Register (r) DVEA and DVRA 5. Estimated Time Budgets
6.Audit Programme - Revenue Collection, Receipting and Banking Conduct the following checks to ensure that the system is being operated in accordance with the Financial Memoranda
Ref Audit Programme Tasks Preparation and Banking of Receipts 1. Ensure that the authentic signature of the Local Government issuing officer is evident on the cover of the receipt book Confirm that receipts are made out in indelible pencil or blue/ black ballpoint pen For each receipt book, do a 100% validation/matching of receipts issued, to the amounts banked per bank stamped deposit slip, and to the bank statement, ensuring all amounts receipted have been banked Ensure that the funds have been banked promptly and intact into the correct Bank Account namely the Revenue Collection Account Ensure that all amounts per the bank stamped deposit slip are correctly recorded in the Revenue Collectors Cash Book,. Check that the revenue classification in the cash book is correct, ie it accurately reflects the classification recorded on the receipt Trace the deposit to the main cash book, ensuring correct classification again. For any receipt that has been cancelled, ensure all copies of that receipt have been retained Integrity of Receipt Register 9. From the receipt register, validate the authenticity of the signature of the revenue collector who is signing for the receipt of the receipt book Meet every revenue collector, ask to see all the current receipt book(s) he is using, record the number sequence(s), and check that sequence(s) back to the central receipts register [this is to guard against unofficial receipt books being in use.] Carry out a physical inspection of the stock of all unused receipt books on hand, and check the sequences back to the receipt register, ensuring that the register records the receipts as un-issued. Inspect the Receipts Register, to ensure that all [ non sampled] receipt books have been signed for Arithmetic Accuracy and Posting 13. 14. Check the casting and balancing of the receipts cashbook, Post the receipt totals to the general ledger
2. 3.
4.
5.
6.
7. 8.
10.
11.
12.
Cash Survey 15. Immediately after test 6 above , conduct a cash count [ covering every revenue collector, and cashier] to ascertain that the officer is holding the cash for all receipts issued that have not yet been banked Undertake control of all cash and imprest points to guard against switchovers Ensure that the cashier does not have access to ledgers, accounts or write-offs. Confirm that there are satisfactory arrangements in operation to cover any absence of the cashier, including holidays. Direct Banking (when used) 19. 20. 21. Ascertain that all Bank Tellers are serially numbered and reflected into the Bank Statements. Collate all Bank Tellers not credited into the account of the Local Government. Check that all revenues credited into the account of the Local Government is recorded in the Revenue Register and official receipts are raised as appropriate. Revenue Contractors 22. Where revenues are contracted to Revenue Contractors/Franchised Revenue, Contract agreements and Executive Committee's approval must be obtained Check the adequacy of revenue returns sent by the revenue consultants. Check that the percentage of commission paid to the consultant is justifiable (should not cover direct bankings). Ensure that 10% consultancy tax is deducted from all the consultancy fees (commission) paid, adequately recorded and paid to the revenue service. Confirm that the contracts contain provision for a performance bond in accordance with Local Government Public Procurement and Disposal of Public Assets Regulations.
16. 17. 18.
23. 24.
25.
26.
C - Contracted Revenue Collection 1. Main Activities Involved This audit programme covers the Local Governments collection of revenue from contracted sources ie Consultants. These primarily include Markets, Parking Fees, Motor Park Tolls, Tri-cycle Tolls (Keke Marwa), Public Conveniences, etc 2. Control Objective To ensure that all revenue from contracted sources is properly assessed and collected promptly. 3. Risks The risk to the Local Government of poor control over assessment and/or collection of revenue by Consultants is a shortfall, or misappropriation, of funds meaning that planned activities, funded by these revenues, cannot be completed. 4. Records Required at Audit The following records should be requested from the local government at the start of the audit:
(a) Legal Agreement of Contract; (b) Council/Contract Committee Minutes; (c) Evaluation Committee Minutes; (d) Contract Monitoring Records; (e) Revenue Registers (f) Approved Budget Estimates (g) Franchise revenue records (h) Bank tellers paid-in by consultants (i) Treasury receipts 5. Estimated Time Budgets
6. Audit Programme - Contracted Revenue Collection

Ref Audit Programme Tasks Contracts Assessment and Valuation For every Revenue Collection contract ensure, through inspection, that a rigorous valuation and assessment of the potential revenue base and yield was undertaken, at the outset of the contract, and within the last 12 months. 1. 2. Ensure the register / database of related taxpayers is complete & up to date Check that the factors used to calculate yield / occupation rate / average revenue per unit [ie whatever is applicable for the revenue source concerned], are reasonable and realistic. Ensure that reasonable calculations were carried out of the all the costs involved in the collection of the revenue Ensure that a realistic reserve price was set which provided both the Local Government and the Contractor with a reasonable return from the asset base [Local Government], and the effort/risk [Contractor] 5. Confirm that, given all the evidence, the revenue being received from the contract is commercially reasonable in relation to the value of the function being contracted out.
3.
4.
Contract Content 6. From the contracts prepare a schedule of when payments were due and the amounts due (or basis of calculation if based on actual revenue collection). Confirm that the contracts contain provision for a performance bond in accordance with Local Government Public Procurement and Disposal of Public Assets Regulations. Confirm that the contracts can be cancelled immediately in the event of non-payment of amounts due, Confirm that the contract provides for a review of the contract price annually Contract Performance 10. Examine the Finance Department records for contract performance monitoring and confirm that these are up to date and fit for purpose. Confirm for all contracts that payments are being made on time and for the amounts expected, [Check the
7.
8. 9.
11.

payment to the cashbook, deposit slip and bank statement] 12.
Ascertain that effective legal action has been taken in cases where revenue has not been paid in accordance with the contract Confirm that all such cases have been formally communicated to Local Government
13.
D - Capital Receipts 1. Main Activities Involved This audit covers capital receipts where applicable. 2. Control Objective To ensure that the sale of assets is based on a fair value and that receipts from the sale of assets are properly received and accounted for. 3. Risks The key risk to the Local Government is that public assets are not disposed of in accordance with appropriate legislation, and as a result the corresponding capital receipt is not received by the Local Government. The underlying risks are: (a) the failure to properly record and account for capital receipts (b) capital receipts are understated in the accounts. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Bank deposit slip/ paying in book (b) Bank Statements (c) Local Government Minutes and Approvals (d) Board of Survey Report 5. Estimated Time Budgets
6. Audit Programme - Capital Receipts

Ref Audit Programme Tasks Assessment 1. Check that assets sold have been disposed of in accordance with the Public Procurement and Disposal of Fixed Assets Regulations. 2. 3. 4. 5. Ensure that a minimum reserve price was assessed and set. Ensure the disposal was advertised Ensure bids were fairly assessed. Ensure the award went to the highest bidder Invoicing/ Receipting 6. Ensure that the agreed sale price was correctly invoiced to the purchaser. Payment

7. 8. 9. Confirm that payment has been received and banked in full .
Confirm that the transaction is correctly recorded in the ledger, Confirm the amount was correctly minuted Asset Register
10.
Ensure the disposal has been properly recorded in the asset register
SECTION III: PAYMENTS A: Salaries & Allowances 1. Main Activities Involved This audit covers all aspects of salaries and allowances including appointment, salary levels; gross pay and deductions. 2. Control Objective To ensure that approved procedures are followed; that the payments made are correct and in accordance with agreed scales; that records maintained are adequate and accurate; and that proper security is exercised over custody and payout of cash or cheques. 3. Risks The key risk to the Local Government of poor control over payroll is that ghost employees may exist resulting in the overpayment on the salaries accounts. The underlying risks are: (a) salary payments may not have supporting documents and not be properly authorised. (b) the Local Governments Financial Memoranda may have been flouted when recording, paying and reporting salary details. (c) the incorrect salary may have been calculated and the wrong persons may have been paid. (d) the payments may have been incorrectly posted in the cashbook and the ledgers and that the wrong accounts heads may have been used. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Personal Emolument Register; (b) Approved Salary Structure; (c) Staff Records/List; (d) Pay Record Cards; (e) Timekeeping Register (signing in book); (f) Overtime Register; (g) Advances Register; (h) Sickness Records; (i) Leave Records and (j) Training Records. 5. Estimated Time Budgets
6. Audit Programme
Ref Audit Programme Tasks Payroll Payments 1. 2. Cross-check 100% the payroll payments against the PE Register, checking that all amounts tally From the Approved Salary Structure confirm that all posts are paid at the correct salary grade and at the correct rate of pay and ensure a coverage of at least 25% Review the deductions to ensure they are reasonable. Investigate any unusually large deductions and obtain justification For any significant supplementary advances /allowances , inspect [and note] the relevant authority to make such payment, and check the amount is entered in the advances register Check 100% of net amounts per the payroll to actual amounts withdrawn form the Bank Check the casting on the summary sheet to ensure the total is correct. Check the total amount withdrawn on salary has been reflected on the bank statement Carry out a review of the gross monthly payroll amount and investigate significant fluctuations, validating the reasons given. Payroll Deductions 9. 10. Check the casting of the deduction columns on the payroll, to ensure the total is correct Ensure that the total amounts have been paid to the respective creditors [PAYE, NUT etc] ie check that the payment is reflected in the cash book and bank statement. For recovery of advances, ensure the recovery has been entered into the advances register. Payroll Records 12. 13. For each selected employee per 2 above, verify their existence, by various approved means. Confirm that the salary grade contained in each persons staff record file is the same as that on the PE Register. 14. Confirm that a permanent record is kept of all service of every individual for pension and redundancy purposes. Ascertain which members of staff have left in past 12 months and check that the PE register and Payroll have been updated. Confirm that new staff are entered in the Payroll in the right period and amounts
3.
4.
5. 6. 7. 8.
11.
15.
16.
B - Non-Wage Payments: Other Overheads 1. Main Activities Involved The audit covers the entire payment process covering Requisitions, Authorisations, Local Purchase orders, Receipt of Goods/services, Cheque and Cash Payments, Recording and allocation of expenditure and Posting to books of accounts. 2. Control Objective
To ensure that all payments made in respect of Non-Wage Expenditure are within relevant budgets and that this expenditure has been properly incurred and approved in accordance with specified procedures. 3. Risks The key risk to the Local Government of poor expenditure controls is that goods or services could be paid for which were not ordered or received or of adequate quality, and that expenditure was incurred without due regard to economy, efficiency and effectiveness. The underlying risks are: (a) payment vouchers may not have supporting documents and were not properly authorised. (b) the Local Governments Financial Memoranda may have been flouted when ordering for goods and services (c) budget allocations may not have existed for the payment made. (d) the wrong persons may have been paid. (e) the payments may have been incorrectly posted in the cashbook and the ledgers and that the wrong accounts head may have been used. (f) Paying a wrong amount. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Cash Book; (b) Requisitions; (c) Local Purchase Orders File; (d) Store Received Voucher File (e) Vote Book; (f) Accounting, Stores and Fixed Asset Records; (g) Payment Voucher File; (h) Approved Signatories List; (i) List of approved contractors and suppliers (j) Minutes of Funds Management Committee 5. Estimated Time Budgets
6. Audit Programme
Ref 1. Audit Programme Tasks Locate the payment voucher and ensure that it has been properly completed and authorized by officers with appropriate authority. Ensure that where applicable the payment voucher is supported by: (a) a requisition for goods or services from the user department (b) a copy of the LPO (c) a delivery note from the supplier
2.

(d) a store receipt voucher from stores (e) a suppliers invoice
3.
Inspect the purchase requisition, LPO and SRV and ensure that each have been fully completed and signed by the correct officers of appropriate authority. Where applicable inspect evidence that all key aspects of the procurement process have been properly carried out and that due process has been followed. Inspect the suppliers invoice and ensure that: (a) the payment checking stamp has been fully completed by the appropriate offices (b) the details of goods and services thereon match all the supporting documentation (requisition, LPO, SRV etc.). (c) all calculations and arithmetic is correct (d) the price is in accordance with approved price lists/ quotations
4.
5.
6. 7.
Confirm that the expenditure has been charged to the correct head/ sub head. Confirm that the LPO and the payment have been properly recorded in the respective vote book and that budget availability existed at the time of incurring commitment for the Expenditure Ensure the payment instruction has been recorded in the Payments Register Trace the payment and its classification into the Abstracts Ledger Add up the Abstracts Ledger and check the postings of the totals into the General Ledger. Where applicable check that stores purchases are correctly recorded in stores records by checking from the SRV to the stores record. Where applicable check that fixed assets are correctly recorded in fixed asset register by checking from the SRV to the Fixed Asset Register.
8. 9. 10. 11.
12.
C Stores Verification 1. Main Activities Involved This audit covers the audit of the item of stores in the Local Government. 2. Control Objective To ensure that all stores have been recorded and are properly classified, described and recorded. 3. Risks The key risks to the Local Government is that store items may not be properly recorded in the store ledgers and that stores may be misappropriated. The underlying risks are: (a) failure to comply with procedures and regulations governing stores (b) that there is poor control over the use and allocation of stores (c) that excessive costs are incurred and/ or lost is incurred by the Local Government. (d) that security documents are misappropriated and revenue is lost to the local
government. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Stores Ledger/ record (b) Stock Accounting Records/ Cards; (c) Store Receipt Vouchers (SRV); (d) Store Issue Vouchers (SIV); 5. Estimated Time Budgets
6. Audit Programme Stores

Ref Audit Programme Tasks Security 1. 2. 3. 4. 5. 6. 7. 8. Confirm that when you arrived at the stores, you were asked to show your identification prior to access. Confirm that there is a controlled access point into the stores. Confirm that the premises seem secure against intruders. Can storekeepers observe all exits? If not, is any improvement possible? List the key-holders. Confirm that the storekeeper is the only person allowed to receive and issue stores. Check that all details were correctly and promptly entered onto the store records Carry out a physical stock verification and investigate any missing items /discrepancies Issues 9. 10. From the Stores Issues Voucher (SIV) select all previous issues made and test as follows: Check the details on the issue note to the requisition note, which must be prepared by persons who are not storekeepers. Check that all details were correctly and promptly entered onto the stock records. Select at least 50% by number of the stock cards and physically count the stock, comparing the count amount to the balance on the card. Note all differences, [including the unit cost of the item]. Request storekeepers to explain the discrepancy and investigate the authenticity of their explanation. Receipts 14. 15. 16. Storekeeper issues a stores receipt voucher for all receipts Storekeeper updates relevant bin cards for all receipts All stores receipt vouchers are recorded in the stores ledger by the accountant Security Stores (covering official receipts etc) 17. 18. 19. All printing of security vouchers/receipts is properly authorised All official receipts etc are pre-numbered and the continuity is checked Storekeeper issues a stores receipt voucher for all receipts
11. 12.
13.
20.
All issues are checked back to ensure that they are all accounted for
D - Payment of Capital Projects 1. Main Activities Involved This audit programme covers contract of a capital nature such constructions and electrification works and services. 2. Control Objective To ensure that that all contracts (written or implied) are properly entered into and that they are correctly implemented. 3. Risks The risk to the Local Government of poor control over contracts is work will be paid for which were not executed or if executed, they were not done with due regard to economy, efficiency and effectiveness and that contract execution did not deliver the quality or benefits expected. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Estimates; (b) Vote Book; (c) Capital Expenditure Register; (d) Copies of Agreements; (e) Certificates of Completion; (f) Council Extracts (h) Payment Certificates / Certificates of Work Done (i) Contract register (j) Tender Board minutes (k) ExCo Minute Book (l) Official approval of the Governor or Ministry of Local Government as necessary 5. Estimated Time Budgets
6. Audit Programme
Ref Audit Programme Tasks Tendering 1. Obtain the contract file, and through inspection of the Due Process Committee minutes and other documents confirm that regulations were complied with regarding, the following requirements: The preparation and approval of specifications or Terms of Reference Advertising the tender, or shortlisting of suppliers/ contractors Receipt, storage and opening the tender bids. Technical evaluation of bids Evaluation of financial proposals The contract negotiation, finalisation and award

Contract execution and payment 2. 3. 4.
Inspect evidence of adequate contract monitoring and supervision by the LG Confirm the contract has been recorded in the Capital Expenditure Register Confirm all payments are supported by an authentic progress payment certificate, prepared by the contract specified technical supervisor and fall within the payments schedule of the contract Confirm the payment is supported by a receipt Ensure Progress payments reflect the deduction, where appropriate, of retention fees. Confirm the expenditure has been correctly allocated, and is recorded in the vote book Contract Completion
5. 6. 7.
8. 9.
Confirm that a project completion certificate has been completed by the technical supervisor Where applicable inspect the project either on-going, completed or abandoned, and interview the users of the output. If possible, take pictures as evidences of verifications. Make an informed judgment [acknowledging technical limitations] as to whether the project appear to be fit for purpose [FFP]. If FFP appears questionable, escalate the matter through appropriate channels and call for an independent technical inspection. Fixed Asset Record
10.
Where the contract has given rise to the acquisition or construction of an asset(s), check that all details of the asset(s) have been fully recorded in the fixed assets register Leasing of Fixed Assets
11. 12. 13. 14.
Confirm written leasing agreement for all leased assets Confirm contracts kept securely Confirm conditions of the lease contract are complied with. Confirm payments are made promptly in line with the lease agreement
E - Advances and Allowances 1. Main Activities Involved This audit programme covers the audit of personal advances and administrative advances to the Local Governments staff to facilitate operations of the Local Government. 2. Control Objective To ensure that all personal and administrative advance accounts are properly managed and accounted for, and all allowances paid are approved and in accordance with specified rates. 3. Risks The key risk to the Local Government is of poor control over advances and allowances resulting in advances not being properly recorded, retired and accounted for. This could lead to misappropriation and/or improper use of Local Government Funds. The underlying risk is that money advanced will never be properly accounted for or fully recovered by the Local Government. 4. Records Required at Audit
The following records should be requested at the start of the audit: (a) Advance register; (b) Cash Book; (c) Payment Vouchers for advances; (d) Advance Account Ledger; 5. Estimated Time Budgets
6. Audit Programme
Ref 1. Audit Programme Tasks From the payment vouchers, ensure that the all pertinent details of the advance are recorded in the respective advances register. All Advances Confirm that: a the granting of advance has been authorised by the Chief Accounting Officer . b the officer to whom the advance was made did not have any other outstanding / unaccounted advance c the amount advanced agrees with the authorisation and the payment voucher, and that the payment voucher effectively constitutes an acknowledgement of debt 3. Administrative Advances/Seminar/Conferences/Workshops a Confirm that a full accountability return was submitted (retired) when the purpose for opening the advance has been accomplished. b Scrutinise the return in detail to ensure that all elements of the accountability are in order, and vouch the expenditure to valid supporting documentation e.g. i) Signed receipt of allowances schedules which must be matched to signed schedules of attendance registers, ensuring the rates for allowances are in accordance with approved rates ii) Authentic invoices for the supply of accountable services or goods [ hotel or fuel invoices, etc] iii) Determine whether there was, or should have been, a balance left over [ this should usually be the case], and verify that this sum was returned, receipted, and accounted for. c Report on the total amount vouched in the entire sample , and the total amount and the percentage returned, and seek justification where the amount returned is unrealistically low. d Check the accounting of the return to the related journal, confirming that the correct account head has been charged. 4. Personal Advances a Check that recoveries are being made according to schedule, and recovery is not overdue b For all recoveries reflected, check the evidence that the amount concerned was actually received or deducted from salary. c Where an officer has transferred between departments, check that the advance record has been properly transferred to ensure accountability or recovery. d Where an officer has resigned, retired or dismissed, check that the outstanding advance balance has been
2.

fully recovered.
e Check that the previous years balance has been correctly brought into account for this year. f Agree the balances on individual accounts with the individuals concerned.
F - Imprests 1. Main Activities Involved This audit covers the issue and retirement of Imprest accounts. 2. Control Objective To ensure that all imprest accounts are properly managed and accounted for. 3. Risks The risk to the Local Government is that poor control over the issue and management of imprest accounts may result in their improper use, including misappropriation, and subsequent inaccurate or incomplete retirement. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Standing Imprest Record; (b) Cash, Cash Book, Vouchers; (c) Special Imprest Records; (d) Accounting Records (retired imprests); 5. Estimated Time Budgets
6. Audit Programme Imprests

Ref 1. Audit Programme Tasks Obtain details of all outstanding imprest balances held by the imprest holders and confirm that: (a) the Financial Memoranda has been followed in respect of the imprests. (b) that the cash book for the imprest has been properly maintained and reflects all the payment vouchers, and can be reconciled to the balance of cash. (c) Count the cash on hand and agree it to the imprest accounting record. 2. For the retired imprests confirm that: (a) the Financial Memoranda has been followed in respect of the imprests. (b) that the imprests selected have been fully retired with adequate supporting documentation for sums expended. (c) check that the expenditure has been allocated the correct head classification. (d) check the posting of expenditure to the general ledger (e) check that the imprest was sufficient, and not excessive to meet its purpose. (It should be just large enough to cover the period of transactions plus allow time for reimbursement to take place, and not be retired with an

excessive balance)
SECTION IV:
RESERVES
ASSETS, INVESTMENTS, CASH & BANK BALANCES, LOANS & BORROWINGS,
A - ASSETS 1. Main Activities Involved This audit programme covers the audit of the Councils fixed assets including its (a) Non Produced Assets [Land] (b) Buildings, (c) Roads & Bridges (d) Transport Equipment (e) Machinery & Equipment (f) Furniture & Fixtures, The programme incorporates, additions, disposals, the calculation of depreciation, title/ownership, physical inspection, as well as the operations and usage of assets 2. Control Objective To ensure that the Council operates adequate management over all categories of fixed assets, including their acquisition, day to day operation, maintenance and disposal. 3. Risks The key risk to the Council is that fixed assets acquired by the Council are not properly recorded in the Councils books of account, and that assets may be sold to or utilised by third parties without due and valid approval, and that the value received may be misappropriated. The underlying risks are: (a) failure to comply with procedures and regulation for the procurement, and disposal of land and building (b) that there is poor control over the day to day costs of operating and maintaining assets, (c) assets are not properly maintained so that they are fit for the purpose intended (d) that there is poor control over the use and allocation of assets (e) that excessive costs are incurred and/ or revenue is lost by the Council. 4. Records Required at Audit The following records are required for the audit: (a) Asset register (b) Title deeds, and registration documents (c) Council policy for the acquisition, hire, lease and disposal of assets ;
(d) Cash Book (e) Payment Vouchers (f) Hire/ lease documents (g) Ledger Accounts for fixed assets 5. Estimated Time Budgets
6. Audit Programme - Fixed and Non Produced Assets

Ref Audit Programme Tasks Acquisition of Assets 1. Confirm that: (a) due process has been followed and vouch the expenditure accordingly. (b) the Councils acquiring/hiring/leasing policies have been followed (c) the Asset is recorded in the Asset Register 2. 3. Vouch the asset cost reflected in the ledger back to the payment voucher. For acquisitions ensure that the appropriate asset registers have been updated correctly with: (a) asset details (b) asset costs (c) acquisition and ownership details (d) appropriate depreciation/amortisation charge where applicable 4. Obtain and review a schedule of the asset balances per the fixed assets register, add it up, and ensure it balances, or has been formally reconciled with the related account. Investigate discrepancies. Verify the existence of the assets on the register by physical inspection. [Simultaneously note the physical condition of the asset] Establish existence/ ownership of legitimate title deeds, registration books etc in Local Government Name. Maintenance 7. Confirm that the Local Government has in place a policy for the repair and maintenance of the assets. Where applicable ensure that the policy is based on time and usage of the asset [ eg vehicles, equipment etc]. Confirm that asset registers/ records/ job cards record the usage and maintenance costs for the individual assets. Review the maintenance costs and charges made to the ledger accounts for the selected assets for reasonableness. For any assets noted as being in unsatisfactory state of repair, determine whether a maintenance budget exists. If not discuss the matter with the Chief Accounting Officer, and determine what action must be taken Operations and Usage General 10. Confirm that assets are being used for the appropriate task, (i.e. for Local Government operations and revenue generating activities. Investigate assets not being used for such activities. Confirm that adequate security arrangements exist for the storage and custody of assets [particularly vehicles and plant and equipment] such that it is unlikely assets can go missing, or be utilised for private contracts
5.
6.
8.
9.
11.

12.
Confirm that there is a system for recording all expenditure and costs relating to individual vehicles, as well as in total
B - Investments 1. Main Activities Involved This audit covers the audit of the item of investments on the Local Governments balance sheet. 2. Control Objective To ensure that all investments have been recorded at the period end and that amounts in the balance sheet are stated on a consistent basis and are properly classified and described. 3. Risks The key risk to the Local Government is that the investments of the Local Government are not properly recorded in the Local Governments books of account and balance sheet, and that investments they may be sold to or utilised by third parties without due and valid approval, and the disposal value or interest received may be misappropriated. The underlying risks are: (a) failure to comply with procedures and regulations governing investments (b) that there is poor control over monitoring the value of the investment, as well as its returns, and any retain / or sell decisions (c) weak understanding of the risks involved in holding an investment [possibilities of losses] (d) that excessive costs are incurred and/ or revenue is lost by the Local Government (e) lack of proper custody of certificates and title. 4. Records Required at Audit The following records should be requested at the start of the audit: Investment Register Accounting Records; Bank Statements Investment certificates Interest notices Local Government Investment Policy. Minute of council. 5. Estimated Time Budgets
6. Audit Programme
Ref 1. Audit Programme Tasks From the investment register ensure, through inspection that investment certificates [ or other evidence of title] are held in the name of the Local Government for all recorded investments.

2.
Confirm that income has been received for all investments, and verify the receipt of interest to the bank statement and investment register. For new investments, confirm the payment per the cash book and the investment register to the investment certificate. Confirm that investments are subject to annual valuation, and that appropriate appreciation or depreciation entries are recorded in the investment account and the reserve account. Confirm that proceeds from the sale of investments are properly recorded in the investment register, investment account and shown in the bank statement. Ensure that Local Government has approved and minuted all acquisitions or disposals,
3.
4.
5.
6.
C - Cash and Bank Balances 1. Main Activities Involved This audit programme covers the audit of the key aspects of Treasury Management: cash and bank balances. It covers both the operation of cash book[s] and bank accounts during the course of the year, as well as balances at the year end. 2. Control Objective To ensure that all bank accounts are properly authorised and that cash books are properly maintained and reconciled to the Bank Statement on a regular basis. 3. Risks The risks to the Local Government of poor control over cash and bank balances are that funds will not be properly controlled, and are therefore subject to misuse or loss. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Details of all bank accounts; (b) Certificate of Bank balances; (c) Correspondences with the Bank (d) Financial Regulations (Banking Instructions); (e) Cheque Books/Bank instructions records; (f) Bank Reconciliations. (g) Cash Book. 5. Estimated Time Budgets
6. Audit Programme - Cash and Bank Balances

Ref Audit Programme Tasks SYSTEM & COMPLIANCE TESTS Bank Accounts 1. Obtain details of all bank accounts with full titles, account numbers and authorised signatories.

2.
Authenticate this list by requesting the Bank(s) concerned to confirm in writing all accounts in operation [and any dormant]. Confirm that the number and nature of bank accounts conforms to those records in the LG Obtain a copy of the contract and correspondence with the Local Governments bankers ,and confirm that the Local Government has taken appropriate steps to negotiate favourable conditions of service, and favourable bank charge rates. Cheque Control
3. 4.
5.
Confirm that cheques are stored in safe custody and subject to control via a cheque register, which covers the operation of all bank accounts. Review the payment register and confirm that all cheques/payment instructions are issued to approved and identifiable personnel and acknowledged in writing. Authenticate the signature Confirm that the stock balance of cheques is verified at least monthly From the payment register, select one used cheque book/payment instructions for every bank account, obtain the cheque book and the returned cheques from the bank [ if available], and account for the entire sequence of cheques in the related cash book Inspect the returned cheque to confirm that are open cheques are never used, and all cheques have been signed by the stipulated number of designated signatories. If any cheques are spoiled or cancelled inspect the cheque to ensure it has been properly cancelled. Confirm that cheques returned as unpaid have been cancelled, and a new chque issued, and the payment voucher annotated [ and approved] accordingly. Reconciliation of Cash Books with Bank Statements
6.
7. 8.
9.
10. 11.
12.
Confirm that the person(s) responsible for bank reconciliations are independent of the preparation and despatch of cheques/payment instructions and they initial and date the bank reconciliations Confirm that bank reconciliations are made monthly and/or every time a bank statement is received. For each bank account check one bank reconciliation as follows: (a) Verify the arithmetic accuracy of the reconciliation (b) Verify the cash book balance and the bank statement balance with their respective sources (c) Verify standing orders and bank charges have been identified and recorded in the cash book (d) Check that the adjusted cash book figure is used in the relevant financial statements (e) Trace all outstanding cheques and direct bank deposits through to the bank statement in the next accounting period and verify their validity (check that all cheques older than six months are written back) (f) Scan the cashbook/bank statements for any unusual items (e.g. contra entries, dishonoured cheques) and investigate (g) For any cheques that are still outstanding: i) examine the nature of the item not cleared; ii) examine the supporting documentation and authorisations to determine whether they were of a routine nature.
13. 14.
15.
Obtain direct confirmation of account balances from the bank and compare these with the cash book balances

16. 17. 18. Check the arithmetical accuracy of all cash book balances
Check that the Council Treasurer checks each bank reconciliation and initials and dates it as evidence of this Examine security arrangements and adequacy of insurance cover, including for cash in transit YEAR END BALANCES
19.
Confirm that full bank reconciliations have been prepared for all bank accounts, and scrutinize reconciliations for reasonableness. Obtain explanations for unusual reconciling items, and validate as necessary
D LIABILITIES: Trade Creditors and Accruals 1. Main Activities Involved Creditors relate to invoices received by the Local Government that are still to be paid in respect of goods, works and services supplied and expenses applicable to the current year for which they are pending. 2. Control Objective To ensure that all creditors and accruals have been correctly recorded at the period end and that amounts in the balance sheet are stated on a consistent basis and are properly classified and described. 3. Risks The key risk to the Local Government is that creditors and accruals may be misstated. This would mean that the Local Government has not recorded all the expenditure it has incurred and that the financial position is misstated. The underlying risks are: (a) the recorded creditors may not represent all the amounts due to third parties at the period end (b) Accruals and provisions may not be accurately stated and not valued according to sound accounting principles (c) The recorded creditors and accruals may not be attributable to the Local Government. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Accounting Records; (b) Schedule of Trade Creditors and accruals (c) Liability register (d) Unpaid invoices; (e) Annual Accounts. 5. Estimated Time Budgets
6. Audit Programme - Trade Creditors and Accruals

Ref Audit Programme Tasks Trade Creditors 1. Obtain a schedule of creditors as at the end of the year.

2. 3. Confirm that the schedule adds up correctly.
Confirm that the schedule totals agree with those in the creditors control account. If not ensure that a valid reconciliation has been prepared. Confirm that all the creditors balances on the schedule agree on or with the creditors statement (or a valid reconciliation). Vouch or verify any material reconciling items For the items/ amounts selected from the liability register, check to ensure that the item/amount appears on the creditors list. If it does not, check to ensure that the goods or services were received after the period end Compare this years schedule with that of the previous year/ period. If major creditors appear on last year/ period list that are absent this year/ period ensure that there are valid reasons and that there is no omission. Scrutinise the vote book and check the last payment entries before the end of the year Non-trade Creditors and Accrued Liabilities
4.
5. 6.
7.
8.
9.
Confirm that the basis for accrued liabilities is consistent with previous years from the Local Governments Accounting Policies statement. Confirm, by re-performance, that the accrued liabilities calculations are correct. Provisions
10.
11.
Obtain from the accounting records, a schedule of provisions. (a) confirm that the basis for provisions is consistent with previous years from the Local Governments Accounting Policies statement (b) confirm, by re-performance, that the provision calculations are correct
12. 13.
Confirm that any disclosures of material provisions have been made in the final accounts. Ensure that any commitments in the liability register, which are not included in Creditors, appear as a note in the financial statements.
E - Loans / Borrowings 1. Main Activities Involved Loans may be raised and received by the Local Government to fund capital and development works. The terms of loans will include repayment of interest and principle. These terms must be complied with and the use of the application of the loan confirmed to ensure it has been used for the purpose for which it was intended. 2. Control Objective To ensure that all loans have been recorded correctly in the balance sheet and have been raised in compliance with the relevant Laws. 3. Risks The key risk to the Local Government is that loans have not been recorded properly and the financial position is misstated. The underlying risks are: (a) the loan balances do not represent all the loan amounts due to third parties at the period end
(b) that loan receipts have not been applied for the purpose(s) intended, and (c) The Local Government may not have complied with all regulations regarding the raising and repayment of Loans. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Accounting Records; (b) Loans Register (c) Loans Ledger (d) Loan Agreement; (e) Annual Accounts. (f) Minute of council. 5. Estimated Time Budgets
6. Audit Programme - Loans / Borrowings

Ref 1. Audit Programme Tasks Verify that the procedure for obtaining the selected loans was in accordance with the provisions of the Law. Review the minutes of the Local Government to ensure that the loan was properly Authorized Review the usage of the loan to ensure that it was used for the purpose for which it was obtained Review the terms of the loan and verifying compliance with them Confirm that all interest and principle due on the loan has been paid or Accrued Confirm the loan balance to an official statement provided by the lender, or validate any reconciling item. In particular ensure that any repayment reflected on the Local Governments record, is reflected on the Lenders statement. Confirm that a loan progress report is prepared by the HOF
2. 3. 4. 5. 6.
7.
F - Reserves 1. Main Activities Involved

This audit covers the movements and the closing balances on all Capital and Revenue Reserves.
2. Control Objective
To ensure that Capital and Revenue Reserves have been correctly reconciled and accounted for in accordance with stipulated accounting policies.
3. Risks
The key risk to the Local Government is that the reserves are misstated, and that the financial statements therefore misrepresent the financial position of the Local Government as reflected on its balance sheet.
4. Records Required at Audit

The following records should be requested at the start of the audit: (a) Local Government Policy for Reserves
(b) Schedule showing the movement on Reserves between the opening and closing balances. 5. Estimated Time Budgets
6. Audit Programme Reserves

Ref Audit Programme Tasks Accumulated Fund 1. 2. Ensure that the Accumulated Fund is properly reconciled, and comprises the Balance Brought Forward from previous year, plus / minus the surplus / deficit of revenue over expenditure All Other Capital & Revenue Reserves. 3. Investigate all other movements on any Reserve Account, obtain explanations for the increase or decrease, and ascertain what the closing balance represents [ ie what is the debit transaction that gave rise to the Reserve ] Authenticate all significant movements, and the amount, by reference to supporting evidence, e.g. a capital reserve arising from a revaluation of fixed assets, should be supported by the valuers report.
SECTION V: Review of Financial Statements 1. Main Activities Involved

This covers the review of the operation and management of the accounting systems and the preparation of financial statements.
2. Control Objective
a. To confirm that the accounting systems, records and preparation of financial statements are in accordance with the Standardized Format of Federal, States and Local Government Financial Statements. b. To confirm that the accounting system produces accurate, reliable, and complete reports and that the financial statements are prepared in accordance with the Standardized Format. 3. Risks The key risk to the Local Government is non-compliance with accounting requirements, controls and procedures resulting in the failure to meet standardized reporting requirements. The underlying risks are: (a) the incorrect application, and inconsistency in applying accounting policies and principles (b) the incorrect posting of accounting transactions (c) the production of incorrect or incomplete Financial Statements (d) The financial statements are not presented in an acceptable format. 4. Records Required at Audit The following records should be requested at the start of the audit: (a) Daily and Monthly Abstracts of Revenue & Expenditure (b) Advance & Deposit Ledgers (c) Investment Register (d) Main Cashbook (e) Bank Reconciliation Statements & Certificates
(f) DVEA and DVRA (g) Payment slips (h) Payment Vouchers (PVs) (i) Annual local government budget 5. Estimated Time Budgets
6. Audit Programme - Review of Financial Statements

Ref 1. Audit Programme Tasks Check that all ledgers and the below-the-line accounts are posted, up-to-date and balanced on a monthly basis, and at the year end. Check the balances carried forward from last years ledger, to the balance brought forward in this years ledger For the latest month, obtain the trial balance, and check the arithmetical accuracy of the totals Check all the trial balance figures back to the respective general ledger totals Select sufficient general ledger accounts that make up 80% by value of the total trial balance, and check the arithmetic accuracy of the total amount in the general ledger. From this validated trial balance, re-perform the preparation of the financial statements Confirm that the financial statements are produced in the format required by the Accounting Manual, and that they disclose all the information required Confirm through inspection, that complete financial statements have been prepared at the end of every month and year Check that the financial statements are sent to the Office of the Auditor General for Local Governments each month Ensure the annual financial statements are submitted for audit within three months (31 March)
2.
3. 4. 5.
6. 7.
8.
9.
10.
Chapter 5 Working Papers And Audit Evidence

3.5 Audit Evidence 3.5.1 The field standards include Competent, relevant and reasonable evidence should be obtained to support the auditor's judgement and conclusions regarding the organisation, program, activity or function under audit. The following paragraphs explain audit evidence as an auditing standard. 3.5.2 The audit findings, conclusions and recommendations must be based on evidence. Since auditors seldom have the opportunity of considering all information about the audited entity, it is crucial that the data collection and sampling techniques are carefully chosen. When computer-based system data are an important part of the audit and the data reliability is crucial to accomplishing the audit objective, auditors need to satisfy themselves that the data are reliable and relevant. 3.5.3 Auditors should have a sound understanding of techniques and procedures such as inspection, observation, enquiry and confirmation, to collect audit evidence. The SAI should ensure that the techniques employed are sufficient to reasonably detect all quantitatively material errors and irregularities. 3.5.4 In choosing approaches and procedures, consideration should be given to the quality of evidence, i.e., the evidence should be competent, relevant and reasonable. 3.5.5 Auditors should adequately document the audit evidence in working papers, including the basis and extent of the planning, work performed and the findings of the audit. 3.5.6 Adequate documentation is important for several reasons. It will: (a) confirm and support the auditor's opinions and reports; (b) increase the efficiency and effectiveness of the audit; (c) serve as a source of information for preparing reports or answering any enquiries from the audited entity or from any other party; (d) serve as evidence of the auditor's compliance with Auditing Standards; (e) facilitate planning and supervision;
(f) help the auditor's professional development; (g) help to ensure that delegated work has been satisfactorily performed; and (h) provide evidence of work done for future reference. 3.5.7 The auditor should bear in mind that the content and arrangement of the working papers reflect the degree of the auditor's proficiency, experience and knowledge. Working papers should be sufficiently complete and detailed to enable an experienced auditor having no previous connection with the audit subsequently to ascertain from them what work was performed to support the conclusions.
5.1
Key Requirements
The key requirements of this chapter are: All auditors should maintain adequate working papers to provide evidence of their work and the audit findings All working papers should be carefully reviewed by the Team Leader and the Zonal Coordinator The Permanent and Current Files should be carefully maintained Adequate audit evidence should be collected and documented in the working papers to justify all conclusions and opinions in the audit report.
5.2
Working Papers and Files
Working papers provide the essential evidence on which any audit report is based. They must be produced professionally and in accordance with INTOSAI Standards. The term working papers' covers all the schedules, analyses and documents prepared and gathered during the audit. Working papers should fulfil the following objectives: record the work done and evidence gathered provide details of problems encountered demonstrate a methodical approach support the conclusions and recommendations of the audit report facilitate the supervision and reviews of the file by the Team Leader and the Zonal Coordinator
create background and reference material for future audits facilitate discussion with local government officials.
Working papers should also be: Legible Clear Concise, but with sufficient detail Objective Numbered, dated and signed by the originating auditor Referenced back to source.
The papers should be filed in accordance with the standard current audit file index. That index must be placed on the front of the file. All working papers must be signed and dated by the person who has prepared them. Schedules, which support the audit opinion, should have the following information as a minimum: Initials of the person preparing and date Objective of test and cross-reference to audit guide Basis of a sample selection The transactions selected Evidence of work done Results Conclusion in relation to the objectives.
Audit schedules must be prepared in ink. All review notes must be filed and must be properly cleared. The clearance of the review notes requires written answers together with the initials and the date against each point at the time of clearance. Before the file is made available to the Team Leader or the Zonal Coordinator for their review, a schedule must be prepared detailing the points to be brought to their attention. The purposes of such a schedule are as follows: To concentrate the mind of the person preparing it on the overall objective of the audit To give in one document, a complete summary of the local government's development and financial results for the period To summarise all significant matters arising from the audit
To make sure the reviewer is aware of all material matters pertaining to a local government without having to read various sections of the file.
Working papers should not contain: Gratuitous comments Jarqon, buzzwords or unexplained abbreviations; speculation, unsupported or anecdotal evidence Extraneous material.
Auditors should record in their working papers their reasoning on all significant matters, which require the exercise of judgment and their conclusion thereon. All working papers covering audit tests must state: the The objective of the test The nature of the test The method of sampling used The size of the sample compared to the total of transactions from which it is chosen conclusion drawn from the test Any/all suggestions for formal recommendations.
To aid the review and the reporting processes, points arising from the audit should be summarised. The summary can be used at the Exit Meeting and enables the auditor to: Evidence that all objectives have been met Form an opinion on the area under review Demonstrate that findings have been raised with the relevant levels of client management Clarify the accuracy and implications of audit findings Support the audit report and recommendations.
The audit working papers must be sufficiently complete that they stand on their own and do not need to be supported by any additional oral explanations. It is the responsibility of each member of the audit staff to ensure that the area he/she has been responsible for is complete and that the Team Leader and Zonal Coordinator will be able to ascertain what work has been carried out and the reasons for the conclusions reached. Reaching Conclusion from Working Papers Audit working papers should always be sufficiently complete and detailed to enable an experienced auditor with no previous connection with the audit subsequently to ascertain from them what work was performed to support the conclusions reached.
Audit working papers should be prepared as the audit proceeds so that details and problems are not omitted.
5.3
Review of Working Papers
The most important elements in the control of an audit are the direction and supervision of staff and review of the work they have done based on documentary evidence. Procedures are designed to ensure the following: Work is allocated to audit staffs that have appropriate training, experience and proficiency Audit staffs of all levels clearly understand their responsibilities and the objectives of the procedures, which they are expected to perform. Audit staffs are informed of any matters identified during the planning stage that may affect the nature or the extent of timing of the procedures they are to perform. They are required to bring to the attention of the Zonal Coordinator, any significant accounting or auditing problems that they encounter The working papers provide an adequate record of the work that has been carried out and the conclusions that have been reached.
More senior persons within the audit team review the work performed by each member of the audit staff. This is necessary to ensure that the work was adequately performed and to confirm that the results obtained support the audit conclusions, which have been reached. The purpose of the review of working papers is to ensure that: Planned work (as detailed on the Audit Planning Sheet) has been completed The work done is properly recorded The work was adequately performed Correct conclusions have been drawn.
It is important, therefore, that the papers and the conclusions drawn from the work done are subject to review by persons of greater seniority and experience than those carrying out the work. Team Leader's Review The review by the Team Leader should normally be carried out at the premises of the local government and before the audit team leaves. The review should include the examination of all audit working papers to ensure that the conclusions reached are consistent with the audit objectives, and that all audit work is fully documented. As well as signing and dating each working paper that has been prepared, the Team Leader should sign and date each audit working paper not prepared by him/her at the top right hand corner of the page (or any other part of the working paper designated for that purpose) to
evidence their review.
'
The review should also include an examination of the permanent file to ensure it contains all necessary reference data applicable to the LGA's operations and that this data is fully up to date. Any points or queries that the Team Leader raises in her/his review should be recorded, discussed with the relevant auditor to resolve. It is the responsibility of the Team Leader to be satisfied that every point that has been raised has been resolved or noted for follow up by the Zonal Coordinator. The Zonal Coordinator's Review The Zonal Coordinator must carry out a detailed and rigorous examination of the audit file. The Coordinator reviews the detailed working papers prepared by the Team Leader and the other members of the audit team, having regard to: The audit plan The audit objectives Facts and developments which have emerged during the audit, and Knowledge of the local government.
The Coordinator should ensure that the audit objectives have been properly concluded and that there is sufficient relevant and reliable audit evidence to support the audit opinion. The Zonal Coordinator initials the schedules and the preparation of a list of points as evidence of the review The Zonal Coordinator reviews the audit report, the updating of the permanent file, the points to be carried forward to the next audit, the time summaries and variances from budget and the staff assessment forms. Auditor Generals Review The Auditor General has responsibility for all the work, which has been carried out on the audit, at all levels and therefore needs to be satisfied as to its quality and appropriateness (including compliance with statutory and regulatory requirements). The review by the Auditor General is evidenced by the preparation of a list of points, by reviewing the schedules of points that are listed for his/her attention and recording the clearance of those points and by initialing schedules as appropriate. The Auditor Generals review should, in normal circumstances, be limited to review of the: Audit planning Sheet Matters for the attention of the AGLG Draft financial statements
Any working papers prepared by the Zonal Coordinator.
The Auditor Generals review may be delegated to the Director of Evaluation & Reporting.
5.4
Permanent Audit File (PAF)
A permanent audit file is maintained for each local government. The permanent audit file should contain all the documents and information that will be needed to inform future audits at this local government. The permanent audit file must be reviewed each quarter to ensure that it complete and up to date before it is handed over to the Team Leader who will be responsible for the audit in the next quarter. The basic documents which are to be included in the permanent file are as follows: The latest annual financial statements for the local government and the monthly financial statements for the current year The Annual Highlights the statistical returns on the local governments finances prepared for the Statistical Unit, Office of the Auditor for General for Local Governments The latest approved annual budget for the local government Contract agreements with any consultants for revenue collection (franchized revenue) Latest end of quarter bank certificates for each of the local governments bank accounts Latest quarter bank reconciliations Approved chargeable rate details of taxes and charges approved by the State Government for levying of revenue by local governments Current listing of management staff and political office holders for the local government Latest nominal roll providing details of all pensionable staff employed by the local government Approval from the State Governor for any long-term loans in excess of N35 million Approval from the State Governor for any capital project in excess of N35 million. Organisation Charts Audit Planning Sheet Audit Programme Reports of the internal auditor.
5.5
Current Audit File
The current audit files should contain the following: The most recent audit working papers All useful correspondence since the last audit All other information, which may be useful in the current or subsequent audit
Audit files should be retained for at least seven years. The current audit files should normally contain all information about the current audit from the planning process up to the point the final report is issued and relevant post audit events.
5.6
Audit Evidence
Evidence is information that is collected and used to provide a factual basis for developing observations and concluding against audit objectives. Evidence provides grounds for believing that a particular thing is true or not by providing persuasive support for a fact or a point in question. As such, it is evidence that must support the contents of an audit report, including any descriptive material and, more importantly, all observations and conclusions leading to recommendations. Documentation of Audit Testing for Evidence It is important to appropriately document the nature of the tests performed (what kind of test was performed, what kind of evidence was sought), the extent of the test procedures (how deeply the auditor probed, how many tests were performed, what portion of the fiscal period was covered by the tests), the timing of the test procedures (when the testing was performed), the results of the tests and other procedures and the conclusions reached by the auditors. The drive towards zero tolerance for corruption by the Federal Government must be seriously considered when collecting audit evidence as evidence so collected may be used in the prosecution of culpable officers. For this reason, audit evidence must be of such robust quality that the work of the Office of the Auditor General for Local Governments will stand up to scrutiny when examined by external investigative bodies such as Independent Corrupt Practices Commission (ICPC) and Economic and Financial Crimes Commission (EFCC). Audit observations, conclusions and recommendations included in the report must be able to withstand critical examination. They must, therefore, be supported by sufficient appropriate evidence. The following rules of thumb have proven helpful in judging the appropriateness of audit evidence: Documentary evidence is usually better than testimonial evidence
Audit evidence is more reliable when the auditor obtains consistent evidence from difference sources or of a different nature (e.g. testimonial evidence that is corroborated by other sources is better than testimonial evidence alone) Original documents are better than photocopies
Evidence from credible third parties may be better than evidence generated within the audited organisation The quality of information generated by the audited organisation is directly related to the strength of the organisation's internal controls (the auditors should have a good understanding of internal controls as they relate to the objectives of the audit) Evidence generated through the auditor's direct observation, inspection and computation is usually better than evidence obtained indirectly. Sources and types of evidence There are three broad sources for the information that constitutes audit evidence. Information gathered by the auditors (primary evidence). The auditors can gather information directly by such means as interviews, surveys and direct inspection or observation. In these cases the auditors themselves have control over the methods employed and the quality of the information gathered. However, it must be emphasized that the auditors need the necessary skills and experience to apply the methods competently. Information gathered by the person being audited (secondary evidence). Auditors can use information gathered by the person being audited - including the reports of internal audit as well as information found in other files in the LGA, minutes of meetings, reports and documents. Auditors should determine the quality of this information by evaluation and corroboration as well as by tests of the effectiveness of the internal controls over the quality of the information. Auditors can reduce tests of information quality if they find that internal controls are effective. Information gathered by third parties (secondary evidence). Audit evidence can also include information gathered by third parties. In some cases, the auditors may have audited this information themselves. In other cases, establishing the quality of third-party information may be impractical or impossible. The extent to which third-party information can be used as evidence will depend on the extent to which its quality can be established. Minutes of Meetings Sharing the results of the interviews among the audit team is crucial. Good documentation, presented in an easily digestible and accessible form, can add significantly to the efficiency and effectiveness of the audit evidence from enquiry. The audit team should prepare formal minutes for all meetings involving LGA officers that the audit team intends to rely on for evidence purposes. It is a matter of judgment and the responsibility of the Zonal Coordinator to provide guidance to the audit team as to whether or not a particular meeting will require sign-off of minutes for evidence purposes. However, it is recommended that the audit team, at the beginning of the audit, informs the auditee that the record of certain meetings might be used as audit evidence and the approval of minutes by the Executive Committee will be necessary. The audit teams should use the following suggested format for notes and or minutes. The date and location of the meeting The date minutes were prepared
The approximate start and end times The names and positions of each of the attendees A summary of the purpose of the meeting The questions asked and the answers to them A list of actions agreed to at the meeting A list of all documents identified, offered, or requested at the meeting Signature of the senior representative of the auditee Signature of the senior participant from the OAGLG at the meeting and others from the OAGLG in attendance if necessary.
Before being sent to the Officer of the LGA present at the meeting, the minutes should be reviewed and agreed to by the senior participant from the OAGLG at the meeting. The audit team should ensure that the LGA officers do no unduly delay sign-off of the minutes. In cases where sign-off delays or refusals have been encountered, the matter should be referred to the AGLG who will discuss the matter with the Chairman of the LGA. If the matter still remains unresolved, it should be referred to the PAC of State Assembly, who will consider raising the matter with the LGA.
Chapter 6 Audit Reporting

(d) Completeness. Opinions should be appended to and published with the INTOSAI Auditing Standards state: financial statements to which they relate, but performance reports may be free standing. The auditor's opinions and reports should be presented as The reporting standards are prepared by the auditor. In exercising its independence the SAI should be able to include whatever it sees fit, but it may acquire information from (a) At the end of each audit the auditor should prepare a written opinion or time to time which in the national interest cannot be freely disclosed. This report, as appropriate, setting out the findings in an appropriate form; its can affect the completeness of the audit report. In this situation the auditor content should be easy to understand and free from vagueness or retains a responsibility for considering the need to make a report, possibly ambiguity, include only information which is supported by competent and including confidential or sensitive material in a separate, unpublished relevant audit evidence, and be independent, objective, fair and report. constructive. (e) Addressee. The opinion or report should identify those to whom it is (b) It is for the SAI to which they belong to decide finally on the action to addressed, as required by the circumstances of the audit engagement and be taken in relation to fraudulent practices or serious irregularities local regulations or practice. This may be unnecessary where formal discovered by the auditors. procedures exist for its delivery. With regard to regularity audits, the auditor should prepare a written (f) Identification of subject matter. The opinion or report should identify the report, which may either be a part of the report on the financial financial statements (in the case of regularity (financial) audits) or area (in statements or a separate report, on the tests of compliance with the case of performance audits) to which it relates. This includes applicable laws and regulations. The report should contain a statement of information such as the name of the audited entity, the date and period positive assurance on those items tested for compliance and negative covered by the financial statements and the subject matter that has been assurance on those items not tested. With regard to performance audits, audited. the report should include all significant instances of non-compliance that are pertinent to the opinions and reports should identify the legislation or (g) Legal basis. Auditaudit objectives. other authority providing for the audit. 4.0.8 The form and content of all audit opinions and reports are founded on the following general principles: (h) Compliance with standards. Audit opinions and reports should indicate the auditing standards or practices followed in conducting the audit, thus (a) Title. The opinion or report should be preceded by a suitable title or heading, helping the reader to distinguish it from statements and information issued by others. (b) Signature and date. The opinion or report should be properly signed. The inclusion of a date informs the reader that consideration has been given to the effect of events or transactions about which the auditor became aware up to that date (which, in the case of regularity (financial) audits, may be beyond the period of the financial statements). (c) Objectives and scope. The opinion or report should include reference to the objectives and scope of the audit. This information establishes the purpose and boundaries of the audit.
6.1
Key Requirements
The key requirements of this chapter are: All audit work should result in an audit report which will usually be sent the Executive Chair and copied to the Council Manager and the Council Treasurer The quarterly audit reports follow a standard format All opinions should be supported by adequate and sufficient evidence Any audit queries which have been raised will be copied with the Auditor Generals report Audit reports should be issued promptly after the fieldwork has been completed usually within two weeks of the Exist Meeting Audit reports may be complemented with meetings to explain the significance of the findings Quarterly audit reports are usually confidential documents.
6.2
Introduction
In addtition to the statutory audit reports, quarterly reports are provided to the Executive Chair of Local Governments after each of the inspection audit visits to the local governments. These reports are then collated and sent to the Public Accounts Committee (Local) of the State House of Assembly. The reports provided an over-view of the finances of the local government and any audit queries, observations and other matters of significance. The reports usually have the following sections: Financial overview Debt profile Pensionable personnel emoluments Revenue accounts o Internal revenue shortfall o Franchised revenue Expenditure accounts o Unauthorised excess expenditure o Expenditure not accounted for o Overseas training charecterised by irregularities
o Payments without internal audit certification o Doubtful and ficticous expenditure o Outstanding payment vouchers
Audit Highlights financial statistics for the local government.
6.3
Relevant Persons
The Auditor General should determine the relevant persons who are charged with governance and with whom audit matters of governance interest are communicated. These will usually be the Chairs of local governments. However, the reports will also be relevant for the Council Manager, the Council Treasurer and other heads of department.
6.4
Audit Matters of Interest to be Communicated
The matters included in the quarterly audit inspection reports usually cover the standard areas summarised in the introduction above. In each case the observations or findings should be clearly and briefly stated and the regulation which is not being followed (for example, the Financial Memorandum or the Administrative Guidelines) should be indicated. The Auditor General should consider audit matters of interest that arise from the audit of the financial statements and communicate them to the Executive Chair. Ordinarily such matters may include: The general approach and overall scope of the audit, including any expected limitations thereon, or any additional requirements The potential effect on the financial statements of any significant risks and exposures, such as pending litigation, that are required to be disclosed in the financial statements Audit adjustments whether or not recorded by the entity that have, or could have, a significant effect on the entitys financial statements Disagreements with management about matters that, individually or in aggregate, could be significant to the entitys financial statements or the auditors report. These communications include consideration of whether or not the matter has been resolved and the significance of the matter Other matters warranting attention by the Executive Chair, such as material weaknesses in internal control, questions regarding management integrity and fraud involving management. As part of the Auditor Generals communications, the Chairs of local governments are informed that: The Auditor Generals communication of matters includes only those
audit matters of interest that have come to the attention of the auditor as a result of the performance of the audit An audit of financial statements is not designed to identify all matters that may be relevant to those charged with governance. Accordingly, the audit does not ordinarily identify all such matters.
6.5
Audit Queries
Audit queries may be raised by staff of the Office of the Auditor General for Local Governments, but queries may also be raised by the internal auditor of a local government, the Council Treasurer or the Council Manager. If they are over-ruled by the Chair of the local government they should be referred to the Audit Alarm Committee (if it exists) and the Office of the Auditor General for Local Governments. Schedules 1 and 2 of the Guidelines on Administrative Procedure for Local Governments (2011, pages 44-46) details the irregularities or offences which may result in an audit query being issued, the time limit for a reply to the query and the sanctions which are to be applied. If an audit query is needed to be raised during an audit, the Team Leader should discuss the issue with the Zonal Coordinator. The Zonal Coordinator should review the relevant sections of the file and initial and date them. The audit query is written and signed by the Team Leader and sent to the Executive Chair with a copy to the Council Treasurer or other head of department who is responsible for the particular area. The audit queries are reported during the Audit Exit Meeting and copies are also sent with the Audit Inspection Report and signed off by the Head of Evaluation and Reporting.
6.6
Timing of Communication
The Auditor General should communicate audit matters of interest on a timely basis. This enables those responsible to take appropriate action. In order to achieve timely communication, the Auditor General discusses with those charged with governance the basis and timing of such communications. In certain cases, because of the nature of the matter, the Auditor General may communicate that matter sooner than previously agreed. The initial draft audit report should be submitted to the Executive Chair of the local government within two weeks of the end of the audit inspection visit.
6.7
Forms of Communication
The Auditor Generals communications with the Executive Chairs of local governments may be made orally or in writing. The Auditor Generals decision to communicate orally or in writing is affected by factors such as:
The size, operating structure, legal structure and communication processes of the entity being audited The nature, sensitivity and significance of the audit matters of governance interest to be communicated The arrangements made with respect to periodic meetings or reporting of audit matters of governance interest The degree of ongoing contact and dialogue the Auditor General has with those charged with governance. When audit matters are communicated orally, the Auditor General documents in the working papers the matters communicated and any responses to those matters. This documentation may take the form of a copy of the minutes of the Auditor Generals discussion with those charged with governance. In certain circumstances, depending on the nature, sensitivity, and significance of the matter, it may be advisable for the Auditor General to confirm in writing any oral communications on audit matters of governance interest. Ordinarily, the Auditor General initially discusses audit matters of interest with management, except where those matters relate to questions of management competence and integrity. These initial discussions with management are important in order to clarify facts and issues, and to give management an opportunity to provide further information.
6.8
Other Matters
If the Auditor General considers that a modification of the auditors report on the financial statements is required communications between the Auditor General and The Executive Chair cannot be regarded as a substitute. The Auditor General considers whether audit matters of interest previously communicated may have an effect on the current years financial statements. The Auditor General considers whether the point continues to be a matter of interest and whether to communicate the matter again to the Executive Chair.
6.9
Confidentiality
Ethical requirements, legislation or regulations impose obligations of confidentiality that restrict the Auditor Generals communication of audit matters of interest. The Auditor General refers to such requirements, laws and regulations before communicating with officials in local governments. In some circumstances, the potential conflicts with the Auditor Generals ethical and legal obligations of confidentiality and reporting may be complex. In these cases, the Auditor General may wish to consult with legal counsel.

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Audit Manual For the Office of the Auditor General for Local Governments Lagos State

Lagos State Local Government Audit Manual

Version 2.2 December 2012

Version 2.2 December 2012

Lagos State Local Government Audit Manual

Version 2.2 December 2012

Lagos State Local Government Audit Manual

Version 2.2 December 2012

Lagos State Local Government Audit Manual

Version 2.2 December 2012

How to Use The Manual

Lagos State Local Government Audit Manual

Version 2.2 December 2012

List of Abbreviations Used in this Manual

OAGLG PAC PAF SUBEB VFM

Lagos State Local Government Audit Manual

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Audit Report and Materiality

Lagos State Local Government Audit Manual

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Knowledge of the Manual

Overview of the Manual

Overview of Quarterly Audit Inspections

Lagos State Local Government Audit Manual

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This process is also shown in the following diagram:

Lagos State Local Government Audit Manual

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Lagos State Local Government Audit Manual

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Annex A The INTOSAI basic principles are:

Lagos State Local Government Audit Manual

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Chapter 2 Audit Planning

Lagos State Local Government Audit Manual

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2.1 Key Requirements

Purpose of Audit Planning

Lagos State Local Government Audit Manual

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Quarterly Team Work Allocations

Lagos State Local Government Audit Manual

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Medium internal control (2) Medium quality internal auditor (2)

Urban or rural local government *

Highly rural local governments (0.5)

Lagos State Local Government Audit Manual

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Medium risk score of 6 13 Low risk score of 5 or below

3.3 Operational Team Planning

Lagos State Local Government Audit Manual

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Lagos State Local Government Audit Manual

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Lagos State Local Government Audit Manual

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Lagos State Local Government Audit Manual

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Lagos State Local Government Audit Manual

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Annex A AUDIT PLANNING SHEET

ACTUAL TIME SPENT

Cash book COMMENTS Vote Book COMMENTS