This is part 2 of how to read and interpret the reports by the auditor general. The information is provided courtesy of IBP Kenya
“Material” vs. “Fundamental” findings in the Auditor General’s Report
So how should we understand the difference between a finding that is “material” but not “fundamental”?
One possible explanation of the difference is that a material finding is one where procedures were not followed, but a fundamental finding suggests that the failure was systematic, rather than an occasional lapse. This kind of finding is sometimes called a “but for” or “except for” finding, because it finds that “but for” a particular issue, the overall audit would have been unqualified.
Another meaning of the distinction between material and fundamental might be that the potential loss from a “material” finding is less significant (and indeed, there may not be any potential loss) compared to a more fundamental finding, that implies a potentially significant loss of public funds.
Was money stolen or was there plunder? (Qualified Opinion)
For a qualified opinion, the auditor general received all the information required for audit, but his audit reveals some gaps in adherence to procedures and budgets.
The Auditor General uses two kinds of specific items to qualify an opinion and that are more likely to be associated with loss of funds. These are unsupported expenditure, and non-surrender of imprests.
The first is when a Ministry, Department or Agency cannot provide paperwork to show that they actually ordered and received goods and services even though money was spent. The second involves cash advances that have not been returned and for which no paperwork showing how they were used has been provided.
Some of the other causes of a qualified opinion are, in and of themselves, less likely to be about theft of funds than poor management and failure to follow the budget. For example, unauthorized expenditures may be for legitimate expenditure with proper documentation, but they were not authorized. Excess expenditure is expenditure beyond the budget, but may be for legitimate and properly documented expenses. Both are still bad practices that should not be tolerated, but they are not the same as stealing money (in other words, they are not necessarily “plunder”).
Breaking Procurement Laws
In other cases, Ministries, Departments and Agencies do use money for appropriate expenditures, but break procurement rules. Failure to follow procurement processes can lead to loss of funds, but does not necessarily mean money was stolen.
What are some of the examples in the Auditor General report for Qualified Opinion?
When we look at the actual examples provided in the FY 2013/14 report as the cause of the qualified opinion, some additional considerations emerge. Some of the cases included are related to under-collection of revenue (presumably against budget). In others, the sources of revenue receipts to MDA’s are not clear from documents provided. In still others, revenues are collected but not remitted to Treasury. None of these cases is necessarily an issue of plunder.
In other cases, there are pending bills where costs have been incurred but not paid for within the financial year of expenditure. These items are flagged by the auditor because the law does not allow agencies to commit funds for future years. Money for each year is appropriated by Parliament. When a ministry acquires pending bills, it is making a commitment for a future year without authority. However, this is also not necessarily related to any plunder of funds unless the pending bills are not supported, as is sometimes the case.