Non-production of source documents: AGP was unable to conduct audit of FBR in fiscal year 2011

The Auditor General of Pakistan (AGP) was unable to properly conduct audit of the Federal Board of Revenue in 2010-11 due to non-production of source document-wise computerised data of receipts by the tax authorities despite availability of the computerized tax-related data with the FBR.
According to the audit report of the FBR (2010-11) issued by the AGP office, the monthly cash accounts furnished by the FBR treasuries to the Accountant General of Pakistan Revenue (AGPR) during fiscal 2010-11 were not found accompanying details of source documents ie Computerised Payment Receipts (CPRs)/Treasury Challans issued and stamped as "Paid" by collecting branches of NBP in support of their cash accounts. The AGPR thus fed monthly totals of revenue receipts under respective heads of account (without maintaining proper audit trail) in the absence of such details. Further, AGPR was also not having other source of confirmation of revenue receipts' figures reported by the FBR treasuries.
In the above situation, Audit requisitioned source document wise data of entire population of receipts for fiscal 2010-11 from the FBR for financial attest which was, however, not provided till close of the financial attest activity on 15th November, 2011 despite reminders and also this having been brought to the notice of Chairman, FBR. Without tracing a particular balance from the financial statements down to its source documents (and vice versa), audit cannot obtain evidence to ensure the completeness and accuracy of the accounts.
In the absence of the requisite data, the AGP was unable to perform tests prescribed under financial audit manual (FAM) for financial attest. The financial attest was, therefore, then confined to analytical procedures and to the financial data of DAOs/civil treasuries where available on SAP system.
Due to non-production of source document-wise computerised data of receipts despite its computerisation by FBR and its non-availability with the AGPR as well, Audit was un-able to perform audit procedures according to best practices. Audit has detected errors using alternative audit procedures. The tax receipt component may contain errors which cannot be quantified. With this scope limitation, Audit could not carry out financial attest of receipts of FBR in accordance with the international auditing standards and prescribed methodology in letter and spirit. For the stated reasons, Audit could not satisfy itself regarding completeness, occurrence, measurement, and accuracy of tax receipts component, AGP said.
Director (Research & Statistics), FBR replied that the AGPR and its sub-offices reconcile/verify the FBR's revenue figures after having the bank reconciliation statement from the respective treasuries. Hence to say that reconciled figures are not backed by any bank document is incorrect. FBR treasuries were created to supplement the work of AGPR and are manned by the officers from Auditor-General of Pakistan to ensure that requirements of CGA/AGPR are met. The CPRs are the records of the bank and any provision of such record by FBR treasuries to AGPR will compromise the principle of segregation of duties. In view of above, FBR treasuries were performing the functions of AGPR and that the record and summaries were made from that record for onward submission to AGPR.
Responding to this, the Auditor General said that the reply of the FBR that CPRs are record of the bank and any provision of such record by FBR's treasuries to the AGPR will compromise the principle of segregation is not correct. Banks are obliged to supply CPRs to the concerned treasury/accounts office (FBR's treasury in the case under discussion) for maintaining initial accounts so as to enable it to render monthly cash account to the AGPR. As to the AGPR's reconciliation with the FBR, the FBR is also not correct in saying that it is based upon bank reconciled figures. The fact remains that the AGPR's figures are not based upon individual CPRs but upon cash accounts of FBR's treasuries and pay orders/debit authorities deposited by such treasuries/NBP into SBP. The issue needs prompt attention of the FBR and CGA to make the accounts backed by source documents.
The AGP said that the matter needs to be referred to appropriate fora for requisite amendments in accounting procedures of FBR treasuries so that FBR may do the needful. No further progress was reported till finalisation of the report.
According to the Auditor General, the internal controls of the department were found to be weak and ineffective as various control lapses were identified during audit. There was poor monitoring of collection of customs duty and related taxes, weak reconciliation mechanism, inadequate coverage of internal audit and physical verification of inventories/assets, etc.
Internal Audit is an appraisal activity established within an entity as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal controls. Internal audit is an integral part of internal controls, good financial management, and accountability structure, the AG office said.
The statutory audit placed a requisition for supply of audit reports for the last three years of the Directorate General to evaluate the performance of internal audit, its adequacy or inadequacy, efficiency & effectiveness and productivity to the FBR. The Internal Audit did not respond to the requisition and during discussion it was informed that the reports were yet to be compiled. Thus, Audit could not evaluate the performance of the internal audit organisation. Audit recommends that proper implementation of financial reporting mechanism and enforcement of laws and regulations in letter and spirit could help significantly in improving the internal control and internal audit of the department, the report said.
The AG office has recommended the FBR to take appropriate measures to ensure production of auditable record; ensure compliance of recovery rules for timely recovery of government dues; prescribe timeframe for issuance of show cause notice in respect of contravention reports and ensure timely adjudication/assessment to expedite recovery of government dues; prescribe timeline for disposal of confiscated and perishable seized goods; institute a monitoring system to ensure encashment of bank guarantees/post dated cheques before their expiry; improve internal controls to ensure compliance of laws and procedures; improve financial management to keep the expenditure within budgetary allocations and their utilisation according to financial rules; and ensure efficiency and effectiveness of Internal and Post Clearance Audits.