Alarmed by weakness of audit mechanism, IMF calls for independent AGP office

• Warns of fiduciary risks to Rs40tr in public funds
• Questions why auditor general’s office remains attached to federal secretariat
• Audit process bogged down by over 6,000 reports a year, minimal PAC follow-up

ISLAMABAD: The Inter­national Monetary Fund (IMF) has expressed serious concern over the absence of an internal audit mechanism and weak constitutional and parliamentary audit supervision in Pakistan, warning that these gaps pose major fiduciary risks to public funds estimated at about Rs40 trillion at the federal level and even higher in the provinces.

It has called for a fully independent Office of the Auditor Gen­eral of Pakistan (AGP) to ensure better value for taxpayers’ money.

In a detailed section in its Governance & Corruption Diagnosis Assessment (GCDA), the IMF has identified a series of weaknesses in Pakistan’s internal financial controls, internal and external audit systems and practical subservience of the AGP to the executive despite its constitutional autonomy, besides insufficient capacity and role of the parliamentary oversight through the Public Accounts Committee (PAC).

It is therefore unsurprising that cases of financial irregularities, embezzlement and corruption running into trillions of rupees continue to surface year after year.

The Fund said an effective internal control system was essential for creating an environment that ensured appropriate decision-making regarding the use of public resources, with clear accountability for such decisions, including via administrative structures, as well as external oversight by a supreme audit institution and the legislature.

“Both internal and external audits are vital in maintaining the integrity of an organisation’s operations and financial reporting, thereby reducing the risk of corruption,” the Fund observed and highlighted a series of weaknesses and vulnerabilities.

Saying that internal audit was weak in Pakistan, the report noted that the Public Finance Management (PFM) Act 2019 required the creation of a Chief Internal Auditor (CIA) in each division to work directly with principal accounting officers no later than 2020.

“Despite this provision, there has been no implementation and appointment of CIAs,” the IMF said.

It said that 25 chief finance and accounts officers (CFAOs) were working in ministries for financial management — a distinct role — but CIAs have not been posted in all ministries and divisions and CFAOs are also missing in 15 ministries and divisions. The full implementation of the PFM Act 2019 still remains a dream after six years.

“In addition, ministries and divisions with CFAOs lack consistency, interest, and follow-up on the findings of internal audit reports,” it said. The Fund also questioned why the Office of the Auditor General (OAG) was still operating as an attached institution of the Federal Secretariat, which resulted in a lack of full independence.

According to Article 171 of the Constitution and Article 7 of the Pakistan Audit Ordinance, 2001, the AGP has to attest the Appropriation accounts and financial statements of federal, provincial and local governments’ entities and the certified accounts and financial statements of the federal and provincial/local governments are submitted to the president and the governors of provinces, respectively.

“Due to its status as an attached institution, the Auditor General does not report directly to the parliament but instead through the Federal Secretariat, the prime minister, and the president. This indirect reporting structure can potentially compromise the independence and objectivity of the audit process,” it said.

In addition, as an attached institution, the OAG has to obtain approval from the federal Public Service Commission to hire auditors. The OAG complained to the IMF that they faced a significant staffing shortage — a deficit of 1,500 staff members — mainly due to fiscal constraints preventing necessary government approvals for hiring.

Despite the fact that the budget of the Auditor General is classified as charged expenditure, which means it is not subject to a parliamentary vote, the OAG still needs to adhere to budget execution rules. Consequently, they are subject to budget releases by the Finance Division, subject to cash availability.

“This dependency on the Federal Secretariat for budget releases further limits the OAG’s operational independence”, critically important for Supreme Audit Institutions to perform their tasks as needed and required, it said.

As if that was not enough, the effectiveness of the audit process was further being undermined by the excessively long reports that contain repetitive recommendations and the lack of timely review by the PAC.

The Office of the Auditor General produced over 6,000 reports each year, but there was minimal or no follow-up from the Public Account Committee and the ministries and divisions. “As a result, 75 per cent of the 34,000 recommendations made by the Supreme Audit Institution are still pending discussion in the PAC.

Moreover, it pointed out that the audit reports were often too lengthy, with some reaching up to thousands of pages that included repetitive recommendations for years since these irregularities identified in the reports are not addressed by the executive agencies. For instance, the Federal Government Compliance Audit Report for FY2023-24 is 4,000 pages long.

On top of that, there are no systems in place for monitoring the response to or compliance with audit findings and recommendations, which further diminishes the impact and effectiveness of the audit process.

The IMF demanded the development of a system that could make executive authority responsible and accountable in case of non-compliance with audit recommendations as well as PAC directions.

For this, the lender suggested making appropriate amendments to the PAC regulations and AGP Act to empower these institutions to ensure compliance with their directives.

Going forward, the IMF also demanded streamlining audit reports by including concise recommendations for the most critical issues and organising findings by their impact and urgency, using visual tools like traffic light systems to indicate the severity of issues.

In addition, the Fund also demanded strengthening of the parliamentary oversight by mandating the PAC to review audit reports promptly, supported by a tracking system on implementation progress through a centralised secretariat for monitoring and improved transparency and accountability.

Published in Dawn, November 24th, 2025

from Dawn - Home https://ift.tt/ENaAIig
https://ift.tt/HfS3k8R