LECTURE TIIRTEEN
PUBLIC SECTOR AUDITING
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Auditing is an independent appraisal process olten governed by statute, for examining,
investigating and verifying the financial statements of any organization or entity by suitably
appointment.
qualitied personnel with the purpose of expressing an opinion in accordance with the terms of
In the public sector the role of the auditor has been designed primarily to cover:
1) Fiscal audit and (2) Value For Money Auditing (VFM), where the auditor is concerned with Economy,
Efticiency & Etfectiveness of a department whose affairs are being audited.
TYPES: - External Auditing and Internal Auditing.
EXTERNAL AUDITING
Objectives:
i) To enable the auditor to state an opinion whether the financial statements fairly presents the
tinancial situation of the organization.
ii)
iii) To be satisfied that the affairs of the unit have been carried out with compliance with the
requirement of applicable laws and regulation.
iv) To ensure that the unit has made proper arrangement for securing economy,efficiency and
effectiveness in the use of its resources.
auditing.
for thee external auditing of their accounts which are similar to those regulating companies
Duties
An audited copy of statement of accounts should be submitted in a prescribed form, together withof
External Auditor
any report to the minister who will in turn present it to the National Assembly.
The auditor must report on the followings:
i) Whether the accounts show a true and fair view of the unit affairs.
ii) Whether the accounts give all information required under the enabling statute.
iii) Whether all information and explanation necessary for the audit have been obtained.
iv)Whether proper record of accounts are being kept.
v) Whether the final account s agreed with all other accounting records.
vi) Whether ministerial directives regarding the form of the accounts have been properly followed.
vii) Whether he is satisfied as to the legality of items in the accounts and ensures that the unit has not
acted ultra vires.
viii) The auditor must make special tests to uncover any error fraud and misconduct.
ix) The auditor must report on matters arising from the accounts which in the public interest should be
brought to the attention of the authority and member of the public.
INTERNAL AUDITING
This is an independent appraisal of activities within an organization for the review of operation as a
service to management.
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It is a managerial internal control which measures and evaluates the efficiency and eflectiveness of
other internal control systems.
It is normally carried out by specially assigned members of staff-the internal audit depariment of the
unit.
Reasons for internal audit
i) Safeguarding assets.
ii) Ensuring reliability of records.
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iii) Promoting operational efficiency.
(v) Monitoring and compliance with policies and directives.
Scope aud Oblectives oCIuterual Auditing
by the management, size, and structure of the unit as well as the skill and experience of the
internal anditors.
Responsibilities and Duties of Internal auditor
The internal auditor is required to carry out the audit work with reasonable skill and to exercise
due professional care. The duties of the internal auditor will be determined by the management
and may include:
i) Examination of the Internal Control System for adequacy, efficiency and effectiveness.
ii) Examination and cheoking the reliabllity of nocounting records and statements submitted
through the monthly returns.
iii) Verification of the existence of assets and liabilities.
iv) Evaluation of performance using statistical comparison.
v) Review the economy i,e. reviews the efficiency and effectiveness of operations.
vi) Review the functioning (efficiency) of non financial controls.
vii) Assist the external auditor in areas such as -system documentation,flow charting,testing
and monitoring of new system, evaluation of controls, audit tests on transactions and balances, stock
taking etc.
viii) Special investigation.
It should be noted that the Internal Auditors carry out Prepayment-Auditing i.e. examination of
transactions before payments are made.
Objectives of Prepavment auditing
To ensure that expendifures are not upon their face unreasonable or extravagant
ii To ensure that sufficient funds are available to meet payment
iii There are compliance with budgetary, civil service, financial memoranda. and financial
regulations.
Value for money audit:
This is a three in one audit which involves deciding what you need and measuring in some ways
whether you are getting it, and whether the cost is right. It is generally taken to mean the pursuit
of Economy, eficiency and Effectiveness.
i) Economy Audit: This audit isconducted to ensure the achievement of result the least
expenditure of resources.
Efficiency Audit: This is the relationship between the level of services provided and the resources
used to achieve that level. The aim is to ensure that output is maximized from a given level of
input.
iii) Effectiveness_audit: This is an audit conducted to ascertain if the service rendered achieved the purpose
for which it is aimed.
The purpose of Value for money audit is to minimize waste, extravagance, and excessive spending
and to ensure that the organization resources are being optimally utilized.:
Techniques for Carrying Out Value for Money Audit:
i) An initial analysis of financial statistics and unit cost and other performance indicators to
know areas requiring specific study.
ii) Management and system revicw to know how efficiently objectives set are implemented and
the result monitored.
iii) Analyzing of planning & controlling process for operation.
iv) Efficiency assessment: This involves the use of checklists of good practice from within
andoutside.
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v) Effectiveness Review: To know whether or not activities are achieving thei stated objectives by
discussing with manuger imd stalt.
vi) Reporting and Rovlew: The report must be discussed in delail with merabers and ofticers before it is
linalized and presented.
NOTE: Value for money audit rests neither with the internal auditor nor the external auditr but with management.
It is an integrated and corporute concept which involves members and eflicers at all levels and all disciplincs.
Vouching(CAV):
normally carried out on Trading, Profit and loss Accounts items. The objective of vouching is to ensure the
Completeness, Accuracy and Validity of transactions.
Veritication (CAVEBOP):
to ascertain the financial position oOf the enterprise at a particular point in time such as at the end of the [Link]
objectives of veritication are:
i) Confirm the Cost of the assets and liabilities
ii) Contirmn the Authority for Acquiring/disposing the Asset
iii) Confirm that the assets and liabilities are properly Valued.i it g
iv) Contirm the Existence of the assets and liabilities.
v) Confirm that the assets are Beneficial to the unit
vi) Contirm the Ownership of the assels and liabilities at the end of the year..
vii) Contirm that the Asset and liabilities are adequately Presented.
INTERNAL, CONTROL
This is the wholesystem of control, financial or otherwise, established by management in order to carry out the
activities of an organization in an orderly and efticient manner to
- Safeguard Assets
- Detect and prevent Fraud
- Ensure adequacy and application of management controls
- Ensure compliance with policies, plans and procedures
- Ensure that programmes are carried out economically,efficiently and effectively.
- Ensure reliability and suitability of financial and management information.
Types of Internal Control (PAPAMOSS)
i) Physical: It deals with the existence and custody of various assets and involves procedures designed to limit
access to authorized persons only.
ii) Authorization & Approval: All transactions require authority and approval of appropriate persons.
iii) Personnel: procedures must be designed to ensure that the personnel operating the sysiem are competent and
positively motivated.
iv) Arithmetic & Accounting: All transactions must be recorded in accounting books and arithmetic
functions performed to show accuracy.
v) Management: These are the controls exercised by management which are outside the day to day routine of the
organization
vi) Organizalion chart: There should be a plan and detined responsibility.
vii) Segregation of duty: No one person should be allowed to carry out one job from the beginning to the end.
divsun oflalor
viii)Supervision: Actions at all levels should be supervised by a superor officer.
ing ackodgnunt of Pefoana
28 Budgctary contop
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LECTURE IFTccN
PENSION AND GRATUITY
Definition of terms
period of ten years or more, and it is payable for life or a minimum period of five years after
retirement in case of death.
2 Gratuity: This is a lump sum of money paid once to a retired officer who hadl served for a minimum
period of five years.
Peusion able emolument: This is the gross salary attached to a retiring officer subst intive rank at
the date of his retirement including all allowances.
4Withdrawal of service: It is the cessution of service after an officer has served for a minimum period
of five years but below ten years.
5Retirement: This is the cessation of service alter an officer has served for a minimum period of ten
years.
6Resignation: This is the term for the cessation of service atter an ofticer has worked for a period
below 5 years.
7Qualifying service: This means service ufter an officer has served for a period not less than 5years for
gratuity and 10 years for pension.
8Next of kin: This is the name submitted to the establishinent ollice by an officer being the name of
person who is entitled to collect his/her benefit in case of death.
9 Public service: This is a service recognized by government and stated in the pension Act as service to
the nation.
10 Non Pension able service: This is a service not recognized for the computation of pension &gratuity.
These periods are:
a) Service before the age of 15 years.
b) Leave of absent without pay or permission.
11 Compassionate allowances: This is the money paid to the dependants of an officer who died on
active service in addition to the normal entitlements (if any) The amoun of such allowance is at the
discretion of the accounting officer of each unit however, the jederal government has recently issued a
circular regulating the rate of the allowance payable.
12 Statutory period of retirement: An otficer shall retire statutorily on reaching the age of 60years or
having worked for 35 years whichever comes tirst.
13 Voluntary retirement: An officer who has served for 10 years or more may retire voluntarily i.e. on
his own accord. When an officer relires voluntarily before the age ol45years,hc will not be entitled to
collect pension until he clocks the age of 45years.
14 Compulsory retirement: This is the termination of appointment of an olficer who has servedl for
more than 10 years but before the stalntory period of retirement. When an ollicer is compulsorily
retired, he will start collecting pension immediately even if he has not reached the age of 45 years.
15 Notice of withdrawal of service/retiremenl: an officer who has served for a period less than salary
in lieu of [Link] has served for more than 10 years must give three months notice or pay three
months
maintenance of law and order and any other services as may be declaced from time to time by the
President are treated as follow:
i. One completed year of war service ns 2 years
ii period of war service exceeding 6 months as one year
iii period of war service below 6 months as 6 months.
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17 Transfer of service
An officer is allowed to transfer his service from one government sector to another e.g. from years and the nortal
procedures for appointment must be followed [Link],interview etc.
I8 Death Beneft:
designated survivors, based on the number of years served by the deceased officer.
i living retired officer is being calculated. In addition,the dependants will be paid 5years pension based on the table.
[Link] and of good character. However, the pension should not be more than 1/3 of the deceased officer's accrued
pension at the date of his death.
OR
(b) In addition to(ii) above, if the deceased leaves a number of children, pension in respect of each child until the child
attains the age of 18 years of an amount not exceeding 1/9 of the deceased officer's accrued pension until he attains the age
of 18 years.
(c) In addition to (ii) above, if the deceased leaves only one child below 18 years, a pension in respect of the child until the
child attains the age of 18 years of an amount not exceeding 2/3 of the deceased officer's accrued pension until he attains
the age of 18 years.
(d) If the deccased officer leaves a child or children and a widow to whom a pension is granted under (i) above,
subsequently dies, a pension in respect ofeach child as from the date of the death of the widow until such child attains the
age of 18 years of 1/6 of the accrued pension of the deceased officer.
LIMITATIONS
i. The pension shall not be paid to more than 6 children.
ii. A pension granted to a female child ceases when she marries or attains the age of 18years,whichever comes first.
iii. Where the officer leaves more than one widow, the Minister may grant pension to one or more of such widows.
However, the pension to be shared among the widows shall not be more than the one to be granted to a sole widow.
Definition of a child
The Pension Act ,1979 defines a child as:
a) Posthumous child
b) A child born out of wedlock but whose paternity has been accepted.
c) A step child or a child adopted in a manner recognized by law before the death of the deceased officer.
19 Minimum years for collecting pension
All officers that qualify for pension will enjoy it for a minimum period of five years [Link] an officer dies within 5 years
after retirement, his next of kin will be entitled to the same pension till the end of 5 years fom the date of retirement e.g.
where an officer retired in 1990 but died in 1993, his next of kin will be entitled to his pension for the next 2 years
(1994&1995). This may however, be paid enbloc, monthly or annually.
monthly salary at the date of retirement while the maximum is 80%of the total emolument.
7.
21 Rounding up rule: Where an officer hus worked for 6 month or more having served for 10years and above, the
months worked will be rotinded up to 1 [Link] [Link] for 12years 6 months and 5 days, he will be treate as if he
has worked for 13 years. This privilege/concession is only given to those ofticers who have served for more than 10
[Link] Mr. B. served for 9years, Il months und 15 days, it will be assumed that he has worked for 9 years only.
Internal Control over the Payment of Pension and Gratuity
i) Letter ol appointment
ii) Letter of last promotion
iii) Letter of retirement
iv) Clearance letter of indebtedness
v) Passport photograph
In addition to the above, a designated survivor, next of kin/beneficiary will also submit
- Death certificate
- Marriage certificate
- Sworn affidavit as to relationship with the deceased.
Payment of Pension in Proxy
Sometimes it may be necessary to pay the benelit of a retired officer through [Link] of pensioners that
can be paid through proxy are:
Pensioners who are physically incapable of coming to the pay point dué to ill health or old age
Pensioners who reside outside the country or state.
Documents/procedures for paying pension by proxy
i) Written application by the pensioner authorizing payment by proxy.
ii) Passport photograph of the pensioner
iii) Passport photograph of the authorized person
iv) Sworn affidavit from the pensioner and a witness authorizing the person to collect his pension.
v) Sworu alfidavit from the authorized person and a witness accepting the authority to colleci.
vi) Letter of indemnity from the pensioner exonerating government from any loss that may arise from the
agreement in future.
Note: - Authority for payment by proxy is valid for only one year.
-The pensioner and theauthorized persou should be physically present at the pensiou office to
formalized the agreement in the presence of a senior officer
-Where a pensioner can not be brought to the office, photograph of him holding a current newspaper
should be taken to confirm that he is still alive.
Pension and Gratuity Table with Effect from 1st June 1992
Qualifying Service Gratuity as Pension as
Year's %of final pay %of final pay
5 100
6 108
7 116
8 124
9 132 -
10 100 30
11 108 32
12 116 34
13 124
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14 132 38
15 140 40
16 148 42
17 156 44
18 164 46
19 172 48
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20 180 50
21 188 52
22 196 54
23 204 56
24 212 58
25 220 60
26 228 62
27 236 64
28 244 66
29 252 68
30 260 70
31 268 72
32 276 74
33 284 76
34 292 78
35 300 80
Derived Formula for calculating Pension and Gratuity
The following formulae may be used instead of the above table to compute pension and gratuity payable:
Where n is thequalifying service year for Gratuity and Pension
PENSION ACT REVIEW AS PER 1999 CONSTITUTION
1) Pension shall be reviewed every 5 years or together with any civil service salary review,whichever is earlier
2) Pension in respect of civil servant shall not be taxed.
3) Any person that held office as president or vice President shall be entitled to pension for life at a rate equivalent to
the annual salary of the incumbent President or vice President provided that such officer was not removed from office by
the process of impeachment or for breaking any provision of the constitution.
PENSION REFORM ACT 2004.
The new pension reform Act is to regulate, supervise and ensure effective administration of pension matters in the
country.
From July 2004, all civil servants and workers in the private sector(company thatemploy more than 5 staff) are expected to
participate in the compulsory contributory pension fund scheme but nol applicable to workers with less than three years
to retire nd judicial officers who are covered by section 291 of the 1999 constitution.
NATIONAL PENSION COMMISSION (PENCOM)
Composition
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1 A pan time Chairan with a university degree or its equivalent.
2 A director General who shall be responsible for the day to day administration of the commission.
3 llead of service of the Federation
4 Representative of the Federal Ministry of Finance
5 Representative of the Nigerian Union of pensioners
6 Representative of the Nigerian Employer Consultative Forum
7 Representative of the Central Bank of Nigeria
8 Two other members from the private sector
Objectives
i) To ensure that every body who works in the public and private sector receive his retirement as and when due.
ii) To assist improvident individual by ensuring that they save in order to cater for their livelihood during old age.
iii) To establish a uniform set of rules, regulations and standard for the administration and payment of retirement
benefits to retíred staff.
Functions
To regulate, supervise and ensure effective administration of pension matters in Nigeria
2To formulate ,direct and oversee the overall policies on pension matters in Nigeria
3 To fix the terms and condition of service of the employees of the commission
4 To establish standard, rules and regulations for the management of the pension fund.
5Carry out public awareness and education on the establishment and management of the scheme.
6 To investigate any Pension Fund Administrator or Custodian or other parties that are involved in the management of
the pension fund.
7To impose administrative sanctions or fines on erring employees, pension fund administrators or custodians
8 To do any other things, which in its opinion are necessary to ensure ellective and elucient performance of its
tunctions.
Rates of deduction
1 Government Employees: 7.5% by the employee and 7.5% by the government.
2 Military personnel: 2.5% by the employee and 12.5% by the government.
3 Private sector : 7.5% by the employee and 7.5% by the employer
These contributions shall be deducted from the workers monthly salaries on basic salary, transport
and housing while government contribution will be a first charge on the Consolidated
In addition to the above, all employers of labour shall maintain life assurance policy in favour of
their employees with minimum of three times the total annual emolument of the employees.
The employees are also expected to maintain a Retired Savings Accounts (RSA)with any Pension Funds Administrator
(PFA) of their choice.
Withdrawal Of Fund From The Retirement Savings Accounts
a. No person shall be entitled to make any withdrawal or have access lo his RSA before attaining the age of 50 years.
b. An officer retired but less than 50 years on the advice of suitably qualified physician or properly constituted Medical
Board certifying that the employee is no longer mentally and physically capable of carrying out the fnction of his office,
may withdraw trom the RSA or
c. If the officer is retired due to total or permanent disability either of mind or hody.
d. Where an officer retires before the age of 50 years in accordance with the ters and conditions of his employment,
he shall be entitled to make withdrawal s from the RSA.
Payment of retirement benefits
When a holder of Retirement Savings Account(RSA) is retired or attaining the age of 50 years whichever is later, the
balance standing to his credit in his RSA shall be utilized as follows:
a. Programmed mouthly or quarterly withdrawals calculated on the basis of expected life span.
b. Annuity for lifc purchased from a life insurance company licensed by the National Insurance Commission with
monthly or quarterly payments.
c. A lump sum from the balance standing to the credit of his RSA will be paid to him provided that the balance will
be sufficient to procure an annuity or fund programmed withdrawals that will produce an amount not less than
50% of his annual remuneration as at the date of his retirement.
Death of an employee
Where an employee dies his entitlement under the Life Assurance policy shall be paid into his Retirement Savings
Accounts which the Pension Fund Administrator will apply in favour of the beneficiary of the deceased in line with the
payment of retirement benefits.
MISSING PERSON
Where an employee is missing and not found within a period of one year from the date he was declared missing and a
board of enquiry set up by the commission concludes that it is reasonable to presume that he has died, the person
shall be treated as dead employee and provision relating to death employee shall be applied.
PENSION FUND ADMINISTRATORS AND CUSTODIANS
The act provides for the licensing and regulation of Pension Fund Administrators (PFAs) and Pension Assets Custodians
(PACs). Both are to be licensed by the Commission.
DUTIES OF PENSION FUND ADMINISTRATOR (PFA) he is to manage the Pension Funds in addition to
the following duties.
à) Open retirement savings account for all employees with a Personal Identity·Number (PIN).attached.
b) Invest and manage pension funds and assets in accordance with the provisions of this Act.
c)Maintain books of account on all transactions relating to pension funds managed by it.
d) Provides regular information on investment strategy, market returns and other performance indicators to the
commission and employees or beneficiaries of the Retirement Savings Accounts.
e) Provide customer service support to eiployees; including access to employees account balances and statements
on demand.
I) Cause to be paid retirement benefits to employees in accordance with the provision of this Act.
g) Be responsible for all calculations in relation to retirement benefits; and
h) Carry out any other functions as may be direcled, from time to time, by the commission.
DUTIES OF PENSION ASSETS CUSTODIANS (PAC) he is to Pension Funds and Assets in addition to the
following duties.
a) Receive the total contributions remitted by the employer on behalf of the Pension Fund Administrator..
b) Notify Pension Fund Administrator within 24 hours of the receipt of contribution from any employer
c) Hold pension furfds and assets in safe custody on trust for the employee and beneficiaries of the Retirement
Savings Account.
d) On behalf of the Pension Fund Administrator, settle transactions and undertake activities relating to the
administration of pension fund investments including the collection of dividends and [Link].
e) Report to the Commission on matters relating to the assets being held by it on behalf of any Fund Administrator
at such intervals as may be delermined, from time to time, bythe Commission.
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t) Undertake statistical analysis on the investments and returns on investments with respect to pension funds in its custody
and provide data and information to the Pension Fund Administrator and the Commission.
g) Execute in favour of the Pension Fund Administrator relevant proxy for the purpose of voting in relation to the
investments.
Licensing Application by Pension Fund Administrator
Any person who wishes to act or operate as a PFA is required toapply to the Commission for a license to operate as such. His
application should be accompanied with a fee to be prescribed by the [Link] Commission will not issue any license
unless it is satisfied that the applicant has met the following requirements, that is
a) Is a limited liability company incorporated under the Companies and Allied Marters Act whosc object is to manage pension
funds.
b) Ilas a minimum paid up share capital of N150,000,000 or such sum as may be prescribed,from time to time by the
Commission.
c) Satisfies the Commission that it has the professional capacity to manage pension funds and administer retirement benefits.
d) Has never been a manager or administrator of any fund which was mismanaged or has beeu in distress due to any fault,
either fully or partially, of the Pension Fund Administrator or any of its subscribers, directors or officers.
e) Undertakes to the satisfaction of the Commission that it shall not be engaged in any business other than the management
of pension funds; and
1) Satisfies such additional requirements or conditions as may be prescribed, from time to time . by the Commission.
Licensing Application by Pension Assets Custodian.
Any person who intends to act as a PAC shall apply to the Commission for a license with the payment of a
i
fee the Commission may prescribe from time to time. The Commission will not approve any application
for a license to act as a PAC unless it is satisfied that the applicant has met the following requirements,that
a) Is a licensed financial institution registered under the Companies and Allied Matters Act.
b) Has a minimum net worth of N5,000,000,000 unimpaired by losses or any such sum as may be prescribed,
from time to time by the Commission.
c) Has a total balance sheet of at least N125,000,000,000 or is wholly owned by a licensed tinancial institution
total balance sheet of at least N125,000,000,000.
d) The applicant custodian company shall issue a guarantee to the full sum and value of pension funds and
assets held by it or to be held by it, however, where the applicant custodian company is a subsidiary of a
qualified parent company, such guarantee shall be issued by that parent body.
e) Undertake to hold the pension fund assets to the exclusiveorder of the Pension Fund Administrator on trust
for the respective employees as may be instructed by the Pension Fund Administrator appointed by each
employee.
t) Has never been a custodian of any fund which was mismanaged or has been in distress due to any fault, either
fully or partially, of the Custodian.
the Commission.g) Satisties such additional requirements or conditions as may be prescribed, from timé to
lime,by
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