Summary of Result of Compliance Audit for ARTF IP benchmar 1393

Brief on the scope, coverage, methodology and results of compliance audit in three ministries to fulfill the ARTF-IP benchmarks criteria 1393 for the Supreme Audit Office (SAO)


Afghanistan Reconstruction Trust Fund (ARTF), a multi-donor fund monitored/administered by the World Bank, has set Incentive Programme (IP) benchmark criteria to be fulfilled by target ministries of the Government of the Islamic Republic of Afghanistan (GoIRA) and other independent Government agencies in Afghanistan including the Supreme Audit Office (SAO), Afghanistan to receive incentive fund on completion of the benchmark.

          As per the ARTF IP benchmark criteria, the SAO needed to carry out compliance audit and submit report on results of the compliance audit as per the following requirements:

Year of expenditure


Audit as per Auditing Standards

Publication of Reports


5% of the entire expenditure


Reports should be published


20% of the entire expenditure


Reports should be published


25% of the entire expenditure


Reports should be published

Total            50% of the expenditure in life of ARTF IP


Ministries Covered (Previous Year)

1390 & 1391 Expenditures (Audit Report in 1392)

For S.Y. 1390, explanation about coverage of audit and publication of compliance report was not accepted by the World Bank, mainly due to the non-publication of the audit report, which in turn, was because of non-availability of such a mandate under the then prevailing Audit Law. However, as per a meeting held with World Bank and the Budget Directorate of the MoF in March 2013, it was decided that SAO would cover a minimum of 25% of the expenditure of 1391; (5% of 1390 transactions and 20% of 1391 transactions) in the audit of 1392 as per the requirements mentioned above in the table and submit the audit Reports by 10th November 2013.

3.       Accordingly, four ministries namely, the Ministry of Education, the Ministry of Public Health, the Ministry of Public Works and the Ministry of Martyrs, Disabled, Labour & Social Affairs were selected for compliance audit in 1392. The audit of these ministries included coverage of about 27% of core budget expenditure (operating and development).

These reports were submitted to the Ministry of Finance with a copy each to the World Bank the last being on 9th November 2013. The four Audit Reports were prepared as a special audit engagement report to meet the requirements of the ARTF-IP benchmark relating to the SAO for 1392.

Details of high expenditure ministries: 1391


Name of the Ministry




% in 1391 of the combined total






M/o Public Works






M/o Education






M/o Pub. Health






M/o Martyrs, Disabled, Labour and Social Affairs






Total Expenditure for all agencies







Ministries Covered to meet the requirements of 1393

FY 1392 Expenditures (Audit Report in 1393)

For meeting the ARTF IP benchmark requirement in1393, SAO with external audit support of M/s Cowater International Inc. has conducted compliance audit in selected ministries covering more than 25% of core budget expenditure of the FY 1392. The audit has been conducted in accordance with INTOSAIs ISSAIs. The scope of compliance audit included assessment of internal control and internal audit functions, evaluation of compliance with applicable statutes and regulations, reviewing compliance with laws and regulations; whether the statutes, laws and regulations are being followed, whether they are having the desired results, and, if not, what revisions are necessary which is as reflected in the plan document.

The following ministries with the expenditure coverage given therein were selected for compliance audit to specifically meet the ARTF IP benchmark. The compliance audit, however is part of the overall compliance audit of SAO.

Details of expenditure in 1391


Name of the Ministry




%in 1391 of the combined total Exp






M/o Rural Rehab & Devt






M/o National Defense






M/o Interior Affairs






M/o Education







Details of expenditure in 1392


Name of the Ministry




% in 1392 of the combined total Exp






M/o Rural Rehab & Devt






M/o National Defense






M/o Interior Affairs






Total %age  (to meet the ARTF IP benchmark)



M/o Education






Total %age




To meet the ARTF IP benchmark for 1393, SAO has submitted compliance audit report for the three ministries mentioned below to the MoF and the World Bank:


Ministry of National Defence               21.08.1393 (12.11.2014)

Ministry of Interior Affairs                             27.08.1393 (18.11.2014)

Ministry of Rural Rehab & Dev.           21.08.1393 (12.11.2014)


The total expenditure coverage for the three ministries works out to 48.2% of the total core budget expenditure of the Government of Islamic Republic of Afghanistan in FY 1392.


          As per the specific requirements of compliance audit, SAO has applied the Fundamental Auditing Principles of the INTOSAI (Level 3 ISSAIs) as well as the Auditing Guidelines of Level 4 ISSAIs in its methodology. The relevant International Standards for the Supreme Audit Institutions (ISSAIs) of the INTOSAI, namely, ISSAI 100 on the scope of compliance audit, ISSAI 300 on the scope and areas to be covered in compliance audit, ISSAI 4000 on specific requirements of compliance audit in public sector and ISSAI 4100 relating to compliance audit performed separately than audit of financial statements have been applied. Further, the relevant ISSAIs relating to risk, materiality and sampling and substantive test procedures contained in ISSAIs 1000-2999 have also been referred to.  

          The new Audit Law, 1392, under Article 2, amongst others, stipulates the following responsibilities of the SAO:

(i)                                               (i) to provide reasonable assurance on realization of revenues and expenditure of government budgetary agencies;

            (ii)     To ensure consistency of financial and accounting activities of government and all other government entities that are utilizing or holding public properties under the provisions of legislative documents;

              (iii)        To ensure transparency in Government accountability and all other government organizations that are utilizing or holding public assets   

          In line with aforesaid compliance audit objective and to cover more than 25% of the core national budget expenditures in 1393 audit, SAO analyzed the expenditure pattern (operating and development) of the ministries for FY1392 and risk based on expenditure and other factors such as significance in sectors such as education, health, infrastructure and social. The results are as under:

          Based on the expenditure pattern and significance of the agencies including their importance for sectors such as education, rural rehabilitation & development, national security, three ministries, namely, the Ministry of Rural Rehabilitation & Development, the Ministry of Interiors Affairs and the Ministry of National Defence were selected for compliance audit in 1393. These ministries had expenditure of about 48.2 % of the core budget in FY1392. The requirement of coverage of 25% expenditure of the core budget for meeting the ARTF IP benchmark in 1393 and risk analysis also suggested selection of these three ministries.

          Based on the experience of the previous audits and the risks analyzed in previous audits, these ministries were found to be relevant for the audit vis-à-vis weakness of internal control and internal audit, under-utilization of development budget appropriations, weakness in expenditure management and lack of compliance with budgetary authorities, lack of control in procurement and contract management, lack of control to execute the provisions of the relevant law such as the Public Finance and Expenditure Management (PFEM) law, Income Tax law, Custom law, Procurement law and the weaknesses in observing the provisions of the agreement of the donors and various guidelines of the relevant agencies especially the Ministry of Finance.



          Results of audit reflected in the compliance audit reports of the three ministries are organized in the following chapters:

Summary & Report Highlights  

Chapter 1: Scope and Objective of Audit Engagement

Chapter 2: Overview of Expenditure and Budget Implementation1392  

Chapter 3: Review of Internal Audit and Internal Controls

Chapter 4: Audit Finding & Observation 

Chapter 5: Conclusion and Recommendations 

In the audit, it has been found that the three ministries and their relevant departments and agencies at the centre and directorates in the provinces have not adequately complied with PEFM law and other budgetary authorities, the Income Tax Law, the Procurement Law and in developing internal controls and internal audits, in making payments, managing expenditure, procurements of goods and services and execution of development projects. They have also weak control in executing the provision of contracts.

Results of audit reflected in the Compliance Audit Reports of the three ministries are organized as per the following:

a)   Control risks in budgetary management that included low utilization of the development budget and lack of control on project implementations (all ministries), transfer of development budget to operational budget (in MOD and MOI), under-utilization of operational and development budget and other budgetary noncompliance ;

b)   Control risk due to weak internal audit;

c)    Control risk  in high risk areas like procurement;

d)   Control risk in implementation of projects;

e)   Control risk in non-adjustment of advances to staff and Motammeds

f)   Control risk in payments and potential revenue loss to government;

g)  Control risk in expenditure management;

h) Control risk in procurement and contract management;

i)   Control risk in cash holdings by Ministry offices

j)   Control risk in weak management of stores held in custody

Overall budget utilization by the three ministries was low. Ministry of National Defense could utilize only 79.7 percent of its budget of 1392, Ministry of Internal Affairs could utilize only 93.15 per cent of its budget of 1392 and  MRRD could utilize only 78.9 per cent  of its budget of 1392. Though the objects of expenditure were known, significant amounts of expenditure were classified as “Not Elsewhere Classified” in the three Ministries.

The controls for application of the rules and regulations in making payments are found to be weak in all the three ministries. This had enhanced control risks in the application of applicable statute and resulted in increased potential of revenue loss to the government. This is most apparent in:

a.   Inappropriate application of rate of ‘Fixed Tax in lieu of Income Tax’ and ‘Business Receipt Tax’ in making payments;

b.   Recovery of no tax from the payments to  service provider.

The controls for expenditure management were inadequate and weak which resulted in irregular payments, misclassification of payment and inadequate expenditure management.  This is most apparent in:

a.   Substantial amounts of advance payments from operating and development budget to agencies and staff are not adjusted within the year;

b.  Payment  to contractors in excess of applicable rates, payments without supporting documents or without eligibility;

c.    Payments made to supplier without adequate proof of expenditure

d.   Holding large sums of  cash with the cashiers though banking services are avaibale

e.    Inadequate maintenance of accounting records etc. 

Controls for procurement and contract management were not adequate to ensure compliance with the applicable procurement laws and guidelines, provisions of the contracts in the three ministries. This is most apparent in:

a.    Non-compliance with provisions of the Procurement Law in amending contract terms;

b.    Noncompliance with provisions of the Procurement Law in single source contracting for goods and services which could have been procured on competitive basis and at lesser rates;

c.    Lack of enforcing the terms of contract including non-recovery of penal charges for delay in completion of work/supply of goods;

d.   Excess payment to contractors for the quantity of work not done in construction contracts;

Weak Controls in expenditure management in the projects resulted in total lack of expenditure or negligible expenditure in several projects in the social sector as well as in the national security related projects



It has been recommended that the ministries and their agencies at the centre and the directorates in the provinces should strengthen their controls and monitoring systems to ensure compliance with provisions of applicable rules, statutes, agreements and budgetary authorities for appropriate deduction of taxes while making payments, expenditure management, procurement and contracts managements and execution of development budget projects. They should ensure application of existing controls and introduce required controls, where it is absent to meet the control risks pointed out in the audit findings.