Understanding the audit process for public cash

BY LABANGA THUNGU

AUDIT: Earlier this month, the Auditor General released the 2011/2012 audit report to the National Assembly.

His presenting and reading the summary of the report to Parliament is in itself a major public finance management achievement. In the previous constitutional dispensation, the Auditor General’s report was tabled in Parliament by the minister of Finance. 

The strengthened mandate of the Auditor General is provided by Section 229 of the Constitution. It stipulates that the report be presented to Parliament, or a county assembly for county audits.

The Constitution also requires that the Auditor General audit and give his report within six-months of the end of the financial year. Therefore, the report to Parliament will have to be submitted by December 31 — the government’s financial year end is June 30.

This is a major accountability shift as government entities must have finalised their financial reporting to enable the Auditor General audit and report within the timeline.

Kenyans are now protected by the Constitution and will not in future be subjected to historical financial and audit reports.

This makes the case for the Auditor General’s Office to be adequately funded and equipped to meet the tight timelines. The audit mandate is also much wider and covers the accounts of each entity that receives public funds, including political parties!

Newspaper headlines a day after the Auditor General presented the report were awash with reports that more than Sh300 billion of the 2011/2012 budgetary allocations had been misappropriated.

While there is no way we can lose a third of the Budget, there is a lot more than meets the eye in the financial reporting done by government entities.

The facts from the Auditor General report are that a huge portion of government expenditure is unaccounted for. This, from a professional sense, does not entirely mean fraud and corruption, but shows the lack of a coherent and comprehensive system of supporting government expenditure, preparation of relevant accounting reports, and proper maintenance of adequate books of accounts to support the financial reports.

Without properly maintained accounts and supporting documentation, you lose the audit trail on how funds have been utilised, and the consequences are that the Auditor General is unable to obtain full information to form an opinion on the full picture of public expenditure.

Lack of maintenance of proper books of accounts may, however, demonstrate lack of transparency, which may be a pointer to fraud.

By this audit report, the Auditor General asserted his place as the custodian of public interest regarding the use of public resources. This puts us at par with other nations, where a supreme audit institution is central to public finance — something we seemed to have ignored in the past.

But as the Auditor General said, the situation is likely to be worse next year when county governments will be subject to audit. County governors have been at the forefront seeking additional funding. It would be interesting to know what financial management and reporting mechanisms that they have put in place for these funds, and whether such expenditure is being adequately supported and proper books of accounts prepared.

It is good to note that the government did not take the audit report lightly, even though it relates to a period before it came into office. Reports that the President asked Cabinet Secretaries to immediately follow up on the missing information and Auditor General recommendations show commitment to an effective public finance system.

Chapter 12 of the Constitution is very comprehensive on the public finance system that the country should have both at national and county levels. It demands openness, accountability and public participation in financial matters.The Public Finance Management (PFM) Act 2012 also spells out the financial reporting requirements of the national and county governments.

The National Treasury must submit the consolidated financial report to the Auditor General for audit not later than four-months after the end of the financial year. Accounting officers in government entities, on the other hand, must submit their financial reports to the Auditor General, with a copy to Treasury, within three-months of the end of the financial year.

It is, therefore, imperative that the Constitution and PFM Act be followed to ensure the government stays above board in financial reporting.