How to Analyse Reports by the Auditor General

This article focuses on how to analyse the reports by the auditor general in Kenya. The focus is on the different terms and opinions that the Auditor General employs in the audit reports and also some additional information.

The terms apply, with the necessary changes, to both the national and the county governments.

This guide should enable any person to understand and analyse the audit reports from the Auditor General for any arm of the National or the County Government and their respective ministries, departments and agencies (MDAs).

The arms and MDAs include the Executive, Parliament, Judiciary, County Executive, County Assembly, Independent Commissions and Offices, Political Parties, et cetera.)

The definition of terms and opinions are courtesy of IBP Kenya. Unless indicated otherwise, the images used are from the Nairobi County Government audit report for the FY 2014/2015.

Part 1: Definition of Terms

‪1. Unsupported Expenditure

A government ministry (or county department) reports an expenditure. However, it does not provide enough documentation to show for sure that-

  • the spending was authorized (by parliament or county assembly), or
  • it received goods and services for the expenditure.

This is called “unsupported expenditure”. The key information here is the absence of supporting documentation.

image showing unsupported expenditure
Example of unsupported expenditure.

When you hear the media, politicians, the public among others, refer to public funds as “unaccounted for”, they refer to unsupported expenditure which is the correct accounting terminology for public funds ‘unaccounted for’.

2. Excess Expenditure

The government ministry (or county department) overspends its budget without authorisation (of parliament or county assembly).

A ministry (or county department) has a “vote” of spending, that is when Parliament (or County Assembly) tells them how much they can spend. If the government ministry or department exceeds the vote without proper authorization, then it becomes an “excess expenditure” or “excess vote”.

The key information here is spending more than the allocated money without authorization. Here is an example of excess expenditure.

image showing excess expenditure.
Example of excess expenditure.

3. Pending Bills

They arise when a government ministry (or county department) commits to pay for goods and services, and receives those goods and services, but does not settle the bill within that financial year.

Pending bills are a problem because the (national or county) government works on a single-year budget and a ministry (or county department) must have cash and book expenditure when it happens. All money that is not spent is returned to the Treasury (or to the County Revenue Fund in case of a County Government) to be budgeted afresh the next year. There is no basis for carrying forward commitments.

image showing pending bills
An example of pending bills.

NB: In (some) counties, pending bills are considered as (part of the) county’s debt since the pending bills consist of money owed to suppliers.

4. Imprests

These are cash advances when the (national or county) government officers travel or attend meetings that they must return or account for with proper records. They are often not returned or accounted for. Sometimes, officers who have failed to account for them are allowed to obtain new imprests, which is against government policy.

image showing imprests
Example of imprests.

Part 2: Audit Statements

What opinion does the Auditor General have on financial statements (or audit reports)?

1. Unqualified certificate (Unqualified Opinion)

This means that no problems exist with the documentation that the auditor general reviews and the government ministry (or county government department) has managed funds properly.

image showing unqualified certificate
Example of unqualified opinion or certificate (from the national government audit report FY 2012/2013).

An unqualified opinion is a clean opinion, meaning that the financial transactions, by and large, were recorded properly and are in agreement with underlying accounting records.

2. Qualified Opinion

A qualified opinion occurs when the auditor has found some problems but they are not pervasive (widespread or persistent). The auditor received all the information required for the audit, but the audit reveals some gaps in adherence to procedures and budgets.

image showing qualified opinion
Example of qualified opinion (from the national government audit report FY 2012/2013).

A qualified opinion means that financial transactions are recorded and deemed to be in agreement with the underlying records, but there are cases where the Auditor-General is unsatisfied with the accuracy of certain expenditure.

3. Adverse Opinion

An adverse opinion occurs when the auditor general is able to review the ministry’s documentation, but the problems found are pervasive and will require considerable changes to rectify. This kind of finding should be of concern to oversight bodies.

image showing adverse opinion
Example of adverse opinion (from the national government audit report FY 2012/2013).

An adverse opinion means that although the financial transactions are recorded, the Auditor-General may be unsatisfied with the accuracy of significant amounts of expenditure. Consequently, the Auditor-General cannot give a clean (unqualified) opinion and gives an adverse opinion.

4. Disclaimer

A disclaimer is when the auditor is unable to review fully the ministry’s documentation because there is a substantial amount of information that the ministry has not made available.

In such a case, the auditor feels unable to determine whether the situation is qualified or adverse because the paperwork is not adequate. This is a serious lapse in compliance and should be of concern to oversight bodies.

For a disclaimer, the record-keeping is so bad the auditor cannot give an opinion.

image showing Disclaimer opinion
Example of a disclaimer opinion (from Nairobi County Audit Report FY 2014/2015)

A disclaimer opinion is serious and means that there was no basis upon which the Auditor-General can undertake an audit because the accounting records are unreliable. There are no verifiable supporting documentation and explanations for transactions.

Summary of  the audit opinions

Below is a summary of the unqualified, qualified, and the adverse opinion on the FY 2013/2014 national government audit report.

image showing unqualified, qualified and adverse opinion.

Part 3: Additional Information

The images used in this section are from the national government’s audit report for the financial year 2013/2014.

“Material” vs. “Fundamental” findings in the Auditor General’s Report

material finding
(From the national government audit report 2013/2014)

So how should we understand the difference between a finding that is “material” but not “fundamental”?

One possible explanation for the difference is that a material finding is one where the MDAs did not follow procedures.

However, a fundamental finding suggests that the failure was systematic, rather than an occasional lapse. The audit refers to this kind of finding sometimes as a “but for” or “except for” finding. This is because it finds that “but for” a particular issue, the overall audit would have been unqualified.

Another distinction might be that the potential loss from a “material” finding is less significant. Therefore, indeed, there may not be any potential loss. Compare that to a more fundamental finding, which implies a potentially significant loss of public funds.

Was there theft or plunder? (Qualified Opinion)

For a qualified opinion, the auditor general received all the information required for audit. Yet, the audit reveals some gaps in adherence to procedures and budgets.

The Auditor-General uses two kinds of specific items to qualify an opinion and which are more likely to associate with loss of funds. These opinions are the unsupported expenditure and non-surrender of imprests.

The first is when a Ministry, Department, or Agency cannot provide paperwork to show that they actually ordered and received goods and services even though they spent money. The second involves cash advances that government officials did not return and for which no paperwork showing their use is available.

Some of the other causes of a qualified opinion are, in and of themselves, less likely to be about the theft of funds than poor management and failure to follow the budget.

For example, unauthorized expenditures may be for legitimate expenditure with proper documentation, but they have no authority of expenditure. Excess expenditure is expenditure beyond the budget but can be for legitimate expenses that have proper records.

Both are still bad practices that no one should tolerate, but they are not the same as stealing money (in other words, they are not necessarily “plunder”).

What are some of the examples in the Auditor General report for ‪Qualified Opinion?

When we look at some actual examples in the audit reports as the cause of qualified opinion, some additional considerations emerge.

Some of the cases in the reports relate to under-collection of revenue (presumably against budget). In others, the sources of revenue receipts to MDA’s are not clear from available documents.

In still others, government MDAs collect revenues but fail to remit them to Treasury.

None of these cases is necessarily an issue of plunder. See the example below.

In other cases, there are pending bills where the government incurs costs but not paid for them within the financial year of expenditure. The auditor flags these items because the law does not allow agencies to commit funds for future years.

Parliament appropriates money for each year. When a ministry acquires pending bills, it is making a commitment to a future year without authority.

However, this does not also necessarily relate to any plunder of funds unless the government does not support the pending bills, as is sometimes the case. See the example below.

Breaking Procurement Laws

In other cases, Ministries, Departments, and Agencies use the money for appropriate expenditures but break procurement rules.

Failure to follow procurement processes can lead to loss of funds but does not necessarily mean theft of money. See the example below.

(Some of the terms used here like ‘ministry’ are for explanatory purposes. You can apply this guide to any audit report from the Auditor General under Article 229 of the Kenyan Constitution).

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About githinji

I love writing content that is insightful and informative. The articles I write have a common #1 goal: Keeping it as simple as possible for users to understand the content.Read More

3 thoughts on “How to Analyse Reports by the Auditor General”

  1. Thanks for sharing this! Many people, including those in the field of governance, often do not take time to internalize the OAG’s report.

  2. It is indeed good that you inform the people the story behind the terminologies. When a media house headline screams “Only 1 % of expenditure is legal,” we see an outcry from the people yet it’s not the fact.


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