The Republic of Uganda Ministry of Local Government

1 The Republic of Uganda Ministry of Local Government The Local Governments internal Audit Manual, 2007. [C1]. August 2007. The Local Governments internal Audit Manual, 2007. TABLE OF CONTENTS[C2]. 1. INTRODUCTION .. 3. i. Background .. 3. ii. Statutory Responsibilities .. 3. 1. PART I: internal AUDIT MANAGEMENT .. 5. MANAGING THE internal AUDIT UNIT .. 5. RELATIONSHIP MANAGEMENT.. 9. THE RISK BASED APPROACH TO PLANNING AND AUDIT EXECUTION. 11. PLANNING AND BUDGETING .. 16. AUDIT 20. REPORTING .. 23. 2. PART II: internal AUDIT PROCEDURES AND POLICIES .. 26. INTRODUCTION .. 27. OVERVIEW OF THE AUDIT PROCESS .. 30. AUDIT PLANNING AND AUDIT RISK .. 32. AUDIT 39. OBSERVATION AND 46. AUDIT TICKS AND MARKS .. 50. AUDIT 53. SPECIMEN AUDIT WORKING PAPERS.

2 55. AUDIT REPORTING .. 65. 3. PART III: Local GOVERNMENTS internal AUDIT PROGRAMMES ROUTINE. AUDITS .. 69. INTRODUCTION .. 70. INDEX OF AUDIT 71. AUDIT PROGRAMMES .. 74. A1 Budget ..74. A2 Vote Book ..76. Analytical Local Services Tax [LST] ..81. Property Rates ..84. Business Levies ..86. Donor Funds ..88. Central Government Grants ..90. i The Local Governments internal Audit Manual, 2007. Capital Contracted Revenue Other Income Sources ..96. Revenue Collection, Receipting and Revenue Sharing Audit ..100. C1 Salaries, Pensions and Gratuities ..101. C2 Non-Wage Payments ..103. C3 Procurement Audit for Goods, Works and Services ..106. C4 Advances and Allowances ..108. C5 Imprests ..110. D1 Fixed and Non Produced D2 D3 Stores ..117. D4 Debtors, Prepayments and Advances.

3 119. D5 Cash and Bank E1 Trade Creditors and E2 Loans / Borrowings ..125. F1 G1 Review of Financial Statements ..128. 4. PART IV: Local GOVERNMENTS SPECIALISED 130. INTRODUCTION .. 131. COMPUTER AUDIT .. 132. VALUE FOR MONEY (VFM) 142. HUMAN RESOURCE AUDIT .. 150. ii The Local Governments internal Audit Manual, 2007. LIST OF ABBREVIATIONS. ABS Abstract Admin Administration B/d Brought Down Cashbook C/d Carried Down CAAT Computer Assisted Audit Techniques CE Chief Executive HOF Head of Finance CPD Continuous Professional Development Dept. Department DHMCS District Health Management Committees ESAAG East and Southern Africa Association of Accountants Generals FFS Fees for Services FIFO First In First Out GoU Government of Uganda GRN Goods Received Note HIA Head of internal Audit HQ Headquarters ICQ internal Control Questionnaire IFMS Integrated Financial Management Systems IGG Inspector General of Government IIA Institute of internal Auditors JV Journal Voucher LG Local Governments LGFAR Local Government (Financial and Accounting) Regulations, 2007.

4 LGPAC Local Government Public Accounts Committee LIFO Last In First Out LPO Local Purchase Order No. Number NSSF National Social Security Fund Per Annum PAC Public Accounts Committee PAYE Pay As You Earn PV Payment Voucher QS Quality Surveyor REC Receipt Sch. Schedule Shs Shillings TB Treasury Bills TNA Training Needs Assessment TR Treasury Receipt UC User Charges URA Uganda Revenue Authority VFM Value for Money VR Voucher iii The Local Governments internal Audit Manual, 2007. GLOSSARY OF DEFINITIONS. Act refers to the Local Government Act, Chapter 243 of the Laws of Uganda Added Value - Value is provided by identifying operational improvement, and /or reducing risk exposure through both assurance and consulting services, thereby improving the likelihood of achieving organizational objectives, Adequate Control is present if management has planned and organized (designed) in a manner that provides reasonable assurance that the organization's risks have been managed effectively and that the organization's goals and objectives will be achieved efficiently and economically.

5 Audit Entity- comprises a legal entity, organisation, project, accounting unit, department, Local Government , Government unit such as a school or hospital, that is a subject of an audit activity. Audit Objectives are broad statements developed by internal auditors and define intended audit accomplishments. Audit Procedures are the tasks the internal auditor undertakes for collecting, analyzing, interpreting, and documenting information during an audit. Audit procedures are the means to attain audit objectives. Audit Program is a document which lists the audit procedures to be followed during an audit. The audit program also states the objectives of the audit. Audit Report is a signed, written document which presents the purpose, scope, and results of the audit.

6 Results of the audit may include findings, conclusions (opinions), and recommendations. Audit Scope refers to the activities covered by an internal audit. Audit scope includes, where appropriate: Audit objectives Nature and extent of auditing procedures performed Time period audited Related activities not audited in order to delineate the boundaries of the audit Audit Working Papers record the information obtained, the analyses made, and conclusions reached during an audit. Audit working papers support the bases for the findings and recommendations to be reported. Code of Ethics - The Code of Ethics of The Institute of internal Auditors (IIA) are Principles relevant to the profession and practice of internal auditing, and Rules of Conduct that describe behaviour expected of internal auditors.

7 The Code of Ethics applies to both parties and entities that provide internal audit services. The purpose of the Code of Ethics is to promote an ethical culture in the global profession of internal auditing. iv The Local Governments internal Audit Manual, 2007. Compliance - Conformity and adherence to policies, plans, procedures, laws, regulations, contracts, or other requirements. Conflict of Interest - Any relationship that is or appears to be not in the best interest of the organization. A conflict of interest would prejudice an individual's ability to perform his or her duties and responsibilities objectively. Control - Any action taken by management, the Council, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved.

8 Management plans, organizes and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved. Control Environment - The attitude and actions of the Council and management regarding the significance of control within the organization. The control environment provides the discipline and structure for the achievement of the primary objectives of the system of internal control. The control environment includes the following elements: Integrity and ethical values Management's philosophy and operating style Organizational structure Assignment of authority and responsibility Human resource policies and practices Competence of personnel Control Processes - The policies, procedures, and activities that are part of a control framework, designed to ensure that risks are contained within the risk tolerances established by the risk management process.

9 Continuous Professional Development - The Continuous Professional Development can be described as a scheme under which participants can access information for the betterment of their professional services. It refers to learning activities that develop and maintain capabilities to enable professional accountants to perform competently within their professional environments. Due Professional Care calls for the application of the care and skill expected of a reasonably prudent and competent internal auditor in the same or similar circumstances. Due professional care is exercised when internal audits are performed in accordance with the Standards for the Professional Practice of internal Auditing. The exercise of due professional care requires that.

10 internal auditors be independent of the activities they audit internal audits be performed by those persons who collectively possess the necessary knowledge, skills, and disciplines to conduct the audit properly Audit work be planned and supervised Audit reports be objective, clear, concise, constructive, and timely internal auditors follow up on reported audit findings to ascertain that appropriate action was taken v The Local Governments internal Audit Manual, 2007. Error as it relates to internal audit reports is an unintentional misstatement or omission of significant information in a final audit report. External Auditors refers to those audit professionals who perform independent annual audits of an organization's financial statements. External Reviews of the internal auditing department are performed to appraise the quality of the department's operations.