Welcome

Presentation on ‘Audit to Detect Fraud and Corruption; Evaluation of the Fight Against Corruption and Money Laundering’

Presenter:

K M Serajul Munir, Director,Works Audit Directorate

Md. Zakir Hussain, Assistant CAG (Report)

Member, 10th ASOSAI Research Project

SAI Bangladesh

Marcopolo Shenzhen Hotel , Shenzhen, China

11-13 December 2012

Background

Bangladesh is continuing its fight against corruption applying different mechanism of which audit is the best common practice

showing visible progress.

Specifically Bangladesh does not have experience in the name of Corruption audit /fraud audit or audit of money laundering but

in a passive way all these three areas are being covered under audit activities over the years.

Background

SAI Bangladesh has been actively involved with regional and international organizations linked to auditing activities.  Bangladesh has been an active member of Asian Organization of Supreme Audit Institutions (ASOSAI) since its inception.

The office of the Comptroller and Auditor General (OCAG) is committed to promote the goals and aspirations of ASOSAI. It has extended its full support to ASOSAI for fulfillment of its noble cause through professionally participating in its activities.

SAI Bangladesh has been an active member of the INTOSAI, an organization which has a membership of 188 Supreme Audit Institutions (SAIs).

It is assured from the part of SAI Bangladesh that the ongoing research project on audit of fraud and money laundering will be treated with utmost interest, care and efficiency.

Introduction to Bangladesh

Bangladesh emerged as an independent and sovereign country in 1971 following a nine month war of liberation. It is one of the largest deltas of the world with a total area of 147,570 sq. km. With a unique communal harmony, Bangladesh has a population of about 152.51 million, making it one of the densely populated countries of the world.

Introduction to Bangladesh:

Economy Overview

GDP total: $105.00 bn (at current prices 2010-11)GDP per capita: $775 (at current prices 2010-11)GDP growth rate (%): 6.32 (at constant prices 2011-12)Total exports: $24.231 bn (July, 2011-June, 12)Total imports: $30.93 bn (July, 2011-May, 2012)Total FDI: $1.136 bn (2011)Forex reserves: $9.953 bn (17th June, 2012)Currency: BDT (1 BDT=$0.0125) (avg 2011-12)

Source: Bangladesh Economic Review-2012 , Export Promotion Bureau ,

Ministry of Finance, The People’s Republic of Bangladesh.

Supreme Audit Institution of Bangladesh is officially known as Office of the Comptroller and Auditor General (OCAG). OCAG, the SAI of Bangladesh led by the CAG was established in 1973 as per provisions of the constitution of the Republic.

 Articles 127-132 of the Constitution provide for the appointment, power, and functions of the CAG. Because of its independent status guaranteed by the constitution and its reporting relationship to Parliament, SAI can play an effective role in enhancing financial discipline and promoting accountability and transparency in the government.

SAI Bangladesh

Constitution of the People’s Republic of Bangladesh declares that there shall be a Comptroller and Auditor-General of Bangladesh (hereinafter referred to as the Auditor-General) who shall be appointed by the President. As per Article 128 (1) The public accounts of the Republic and of all courts of law and all authorities and officers of the Government shall be audited and reported on by the Auditor-General and for that purpose he or any person authorized by him in that behalf shall have access to all records, books, vouchers, documents, cash, stamps, securities, stores or other government property in the possession of any person in the service of the Republic.  

SAI Bangladesh

Ethical standards maintained in the organization

In reality the standards, code in some specific documents published by either OCAG or other bodies are usually followed as ethical standards indirectly which are followed while performing audit of different types of entities.

These are-

•Generally Accepted Auditing Standards (GAAS); •Bangladesh Standards on Auditing (BSA); •Government Auditing Standards (GAS); •Code of Ethics for the Government Auditors

SAI Bangladesh; Audit practices

SAI Bangladesh, having its legal basis of work on the Constitution, does exercise its function applying different guidelines and mechanisms of them most quotable are Audit Code, Code of Ethics, Government Auditing Standards, Governmant Accounting Standards, Bangladesh Standards on Auditing, ASOAI and INTOSAI guidelines, and last but not the least-ap;ication of ISSAIs.

The main three types of audit being done are-

1.Compliance audit;2.Financial audit;3.Regulatory audit.

SAI Bangladesh; Audit practices

10 audit directorates working under SAI Bangladesh covers the following areas under audit perview-

1.Civil budget and accounts (Civil Audit Directorate);2.Defence budget and accounts (DEfence Audit Directorate);3.Railway budget and accounts (Railway Audit Directorate);4.Comercial entities(Commercial Audit Directorate);5.Revenue entities( Local and Revenue Audit Directorate);6.Government and Foreign aided projects(Foreign Aided Projects Audit Directorate);7.Missions abroad(Mission Audit Directorate);8.Performance audit in addition to special and issue-based audits( Performance Audit Directorate);9.Post and Telecomunication entities(PT&T Audit Directorate);10. Different types of Public works(Works Audit Directorate)

SAI Bangladesh; activities against Corruption, Fraud and Money Laundering:

Regarding the question of corruption, accountability has to do with the fact that for proper observance of rules and regulations , those administering the rules must be held responsible and accountable for their actions. If this is can be treated as a basis, on behalf of the principal [the parliament] SAI Bangladesh is active in keeping the budget receipients [Secretariates, Ministries] accountable for spending public money. This function is done by SAI in two ways-

•Pre auditing;•Post auditing.

SAI Bangladesh; activities against Corruption, Fraud and Money Laundering

In general the overall functions are somehow linked with activities against corruption and to some extent fraud is identified as a class/ type of corruption. There is no specific audit in the name of Fraud audit or Audit of Money Laundering. In these circumstances such particular audit emphasis can be introduced in SAI Bangladesh.

Bangladesh in Corruption Perceptions Index:

Transparency International's Corruption Perceptions Index (CPI) set scale goes from 10 (very clean) to 0 (highly corrupt). In 2010, more than 75% of countries scored less than five, indicating that the world has a major corruption problem.

The CPI is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries. It draws on different assessments and business opinion surveys carried out by independent and reputable institutions.

Bangladesh in Corruption Perceptions Index:

the surveys and assessments used to compile the index include questions relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts. For a country or territory to be included in the index a minimum of three of the sources that TI uses must assess that country. Thus inclusion in the index depends solely on the availability of information.

Perceptions are used because corruption whether frequency or amount is to a great extent a hidden activity that is difficult to measure. Over time, perceptions have proved to be a reliable estimate of corruption.

Worldwide Corruption Perceptions ranking of countriespublished by Transparency International

 

Rank Country Index

2011 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

120  

Bangladesh

2.7 2.4 2.1 2.0 2.0 1.7 1.5 1.3 1.2  

.

Table: Bangladesh trend in CPI

Auditing Fraud; Bangladesh Scenario:

It is to be mentioned here that there does not exist any audit practice particularly in the name of Fraud auditing. But, while applying guidelines enacted by applicable codes and standards, the instances of fraud, if anything exists those are chalked out and brought under focus and included in the audit reports. For example- in case of auditing the financial institutions like bank, insurance, leasing some audit objections are raised which shows indication of fraudulent practices either in an active or a passive way. It can be taken into consideration that if specifically Fraud is taken as an issue, SAI Bangladesh can add value resulting in expected attainments.

Auditing Fraud; Bangladesh Scenario:

As SAI Bangladesh is intended to apply ISSAIs in performing audit, its expected that all possible areas and issues will be covered in coming days. ISSAI 1240 enacts the auditor’s responsibilities relating to fraud in an audit of financial statements. In SAI Bangladesh replacing the traditional vouching audit, SBA and Risk based auditing are taking place in a speedy pace which ultimately ensures the hope to strengthen audit of fraud in a institutional approach.

Anti Money Laundering activities in Bangladesh

Money Laundering Prevention Act, 2002 of Bangladesh (Act No. 7 of 2002 ) has been published in the Bangladesh Gazette (extra issue) on 7th April, 2002 with the purpose of combating money laundering . As per article 1(2) of the Act, the Government of the Peoples Republic of Bangladesh has made this Act effective from April 30, 2002 AD by an Official Notification in the Gazette.

Money Laundering Prevention Act, 2002; some important extracts:

1. Supremacy of the Act.- 2 . Responsibility of Bangladesh Bank in preventing Money Laundering – 3.Power of enquiry, etc

4. Establishment of Money Laundering Court.

5. Jurisdiction of the Court.

Money Laundering Prevention Act, 2002; some important extracts:

6. Acceptance of the crime for trial etc. (1) Notwithstanding what is contained inany other laws all crimes under this Act will be cognizable for trial under this Act.(2) All crimes under this Act will be Non-bailable.

7. Application of Code of Civil and Criminal Procedure, etc.8. Legal seizure of property9. Freezing of the property

Money Laundering Prevention Act, 2002; some important extracts:

10. Appeal

11. Punishment for Money Laundering

12. Punishment for violation of seizure order

13. Punishment for violation of the Freezing Order

Money Laundering Prevention Act, 2002; some important extracts:

14. Punishment for divulgation of information. 15. Punishment for obstruction in enquiry.-

16. Agreement with the Foreign Country

17. Responsibility of the banks, financial institutions and other institutions engaged infinancial activities in preventing and identifying money laundering—

18. Crime committed by the Company etc

The Way forward

The recent trend of emergence of types of corruption and fraudulent practice knocks the regularity bodies to be aware more in handling malpractices on time with an efficient manner.

Money laundering got attention of major regulatory bodies including Bangladesh Bank-the central bank, Anti Corruption Commission and SAI Bangladesh. It may be expected that in short time Audit of Money Laundering will be treated as one of the most priority area to be audited.

Thank You