To ensure that government business is carried out properly in Ministries Department and Agencies (MDAs) and Metropolitan, Municipal and District Assemblies (MMDAs) the Auditor-General may carry out compliance audit and report the outcome to the auditee and Parliament.
Required:
i) Explain compliance audit in relation to MMDAs. (2 marks)
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Government entities are subject to a variety of laws and regulations not generally applicable to private sector, profit making entities. For example local laws may restrict the authority of Metropolitan, Municipal and District Assemblies to issue debt, and they may be required to pay the proceeds from internally generated funds into special funds etc, other laws may restrict the disbursement of social service payments to eligible applicants.
Violations of any of these, among other laws and regulations could have a direct and material effect on the operations of those entities and their financial statements.
The Auditor General is required to bring to light the infractions of laws and regulations in the annual report.
The compliance audit determines the extent to which, rules, policies, laws, covenants or government regulations are followed by the entity being audited.
ii) Assess the basis for the conduct of compliance audit in MMDAs. (4 marks)
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- The laws and regulations under which the entity being audited operates and of which it is required to comply. This will ascertain those laws and regulations to determine whether the auditee is fully aware of them and the consequences of any breach thereof.
- Internal rules, procedures and directives. These involve ascertaining the entities procedures designed to ensure that the operations and activities are designed to be in compliance with the laws and regulations.
- Compliance with the laws and regulations: The audit is conducted to ascertain the extent of compliance or non-compliance with the laws and regulation and the determination of whether non-compliance is deliberate or due to ignorance.
- Consequence of non-compliance: The audit will determine the possible sanctions or punishment that would arise as a result of the non-compliance.
iii) Discuss the main information that should be contained in the compliance audit report (4 marks)
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- The laws and regulations governing the entity that ought to be complied with. This may be termed as the criteria against which the entity’s compliance is measured.
- The entities awareness of the laws and regulations and the conduct of operations in line with the laws and regulation. The conditions noted.
- The effect of non-compliance. The consequences of the non-compliance will be clearly spelt out in the report.
- Recommendations. These are intended to enable the auditee to rectify and/or prevent future reoccurrence of the non- compliance.