a) Internal Audit Agency was established by the Internal Audit Agency Act, 2003 (Act 658) with the aim of strengthening the Internal Audit Departments of MDAs, MMDAs and Government Agencies.

Functions
It does it work by monitoring and by undertaking inspections and evaluating internal audit activities of MDAs, MMDAs and Government Agencies, for the purpose of ensuring that:

• Financial, management and operating information reported internally or externally by of MDAs, MMDAs and Government Agencies is accurate, reliable and timely.
• The financial activities of MDAs, MMDAs and Government Agencies are in compliance with laws and government policies.
• National resources are adequately safeguarded
• Public resources are used economically, efficiently and effectively
• The goals of MDAs and MMDAs are achieved
• The agency should also facilitate the prevention and detection of fraud in MDAs and MMDAs.

Performance
To a large extent IAA has been performing it functions:

• It has been establishing Inter Audit Units in organization which hitherto, were not having internal audit units, ensuing controls are checked and public sector spending are monitored.
• It has been signing audit charter specifying the mandate and responsibility of internal audit units and management of Government Agencies to ensure that internal audit is given the necessary recognition to perform to the benefit of that government Institution.
• It reviews internal audit work plans and reports, and makes sure that work programmes are followed and adverse factors encountered are corrected for the good management of state resources.
• It establishes audit committees to supervise internal audit functions in MDAs and MMDAs. The audit committees intend submit annual reports on their work done, implementation recommendations of deficiencies in reports which are endorsed by the sector minister and submitted to Parliament, the Presidency and the Auditor-General within six months after the end of the year.

Outcome
The above legal provision has given enough direction to the Internal Auditors helping them to have insight into their work. Awareness of Internal Audit function is also being created for workers to know that Internal Auditors are available to facilitate their work but not to put them into unnecessary trouble.

Even though fraud and misappropriation of government funds have not been wiped out as yet, it has been on the decrease to a large extent since establishment of IAA. Also with the establishment of IAA, Internal Audit Units in Public Sectors have grown in knowledge and experience.

It is clear that if the internal audit departments are given continuous training and are resourced, the work of IAA will be much felt than what we see now.

(10 marks)

b)
i) Positive Effects

In view of the tremendous savings being achieved as a result of removal of ghost names, it is believed that out-sourcing government payroll will inure to the benefit of the government. Additionally, the government can achieve the following:

• Reduction in cost of preparing the payroll as there will not be the need to engage more people and sophisticated software programme to work on the payroll.
• Payroll will be prepared by specialist which will not have been the case with the staff of government department.
• Service company may provide the government a comfort zone by giving indemnity in event of problems arising.
• It will help the government to focus on its core services of offering social services to the public.
• It may reduce payroll fraud.

(Any 3 points for 3 marks)

Negative Effects

• Staff may be laid off as not all the employees may be maintained. This may result in redundancy which may cost the government.
• Ghost names may still persist as dismissals and terminations may not be advised promptly
• If Government fails, it may have to pay redundancy cost for dismissals and workers may go to court.

(Any 2 points for 2 marks)

ii) The user auditor must do the following:

• Understand the transaction by examining all the contracts and identify potential risks
• Evaluate all the controls at the user entity that relate to the service organization and determine whether that gives the auditor sufficient understanding to provide a basis for assessing risks of material misstatement from the side of the government If the auditor concludes that this is insufficient, he must carry out one of the following activities:
• Obtain Type 1 or Type 2 report from service organization (if Available)
• Contact the service organization to get specific information (with permission)
• Visit the service organization and perform procedures to obtain information (with permission)
• Use another auditor to perform procedures at the service organization (with permission)

(1 mark each for any 5 points)

(Total: 20 marks)