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How to Read and Interpret the Reports by the Auditor General (Part 2)

This is part 2 of how to read and interpret the reports by the auditor general.  The information is courtesy of IBP Kenya

See Also: How to Read and Interpret the Reports by the Auditor General (Part 1)

“Material” vs. “Fundamental” findings in the Auditor General’s Report

material finding
(From the national government audit report 2013/14)

So how should we understand the difference between a finding that is “material” but not “fundamental”?

One possible explanation for the difference is that a material finding is one where the MDAs did not follow procedures.

However, a fundamental finding suggests that the failure was systematic, rather than an occasional lapse. The audit refers to this kind of finding sometimes as a “but for” or “except for” finding. This is because it finds that “but for” a particular issue, the overall audit would have been unqualified.

Another distinction might be that the potential loss from a “material” finding is less significant. Therefore, indeed, there may not be any potential loss. Compare that to a more fundamental finding, which implies a potentially significant loss of public funds.

Was there theft or plunder? (Qualified Opinion)

For a qualified opinion, the auditor general received all the information required for audit. Yet, the audit reveals some gaps in adherence to procedures and budgets.

The Auditor General uses two kinds of specific items to qualify an opinion and which are more likely to associate 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 they spent money. The second involves cash advances that government officials did not return and for which no paperwork showing their use is available.

Some of the other causes of a qualified opinion are, in and of themselves, less likely to be about the 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 have no authority of expenditure. Excess expenditure is expenditure beyond the budget but can be for legitimate expenses that have proper records.

Both are still bad practices that no one should tolerate, but they are not the same as stealing money (in other words, they are not necessarily “plunder”).

What are some of the examples in the Auditor General report for Qualified Opinion?

When we look at some actual examples in the audit reports as the cause of qualified opinion, some additional considerations emerge.

Some of the cases in the reports relate to under-collection of revenue (presumably against budget). In others, the sources of revenue receipts to MDA’s are not clear from available documents.

In still others, government MDAs collect revenues but fail to remit them to Treasury.

None of these cases is necessarily an issue of plunder. See the example below.

In other cases, there are pending bills where the government incurs costs but not paid for them within the financial year of expenditure. The auditor flags these items because the law does not allow agencies to commit funds for future years.

Parliament appropriates money for each year. When a ministry acquires pending bills, it is making a commitment to a future year without authority.

However, this does not also necessarily relate to any plunder of funds unless the government does not support the pending bills, as is sometimes the case. See example below.

Breaking Procurement Laws

In other cases, Ministries, Departments, and Agencies use the money for appropriate expenditures but break procurement rules.

Failure to follow procurement processes can lead to loss of funds but does not necessarily mean theft of money. See example below.

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George Githinji
George Githinji
Githinji is passionate about devolved governance, public finance and cycling. He also comments on topical socio-political issues. In addition, he manages the @UgatuziKenya platform.

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