By Staff Reporter
ISLAMABAD: The International Monetary Fund has raised alarms over Pakistan’s lack of robust internal audits and inadequate oversight from its constitutionally mandated auditor general, warning that these deficiencies expose trillions of rupees in public funds to significant fiduciary risks and potential corruption.
In its assessment released as part of the Governance & Corruption Diagnosis Assessment, the IMF detailed systemic weaknesses in Pakistan’s financial controls, including the absence of key internal auditors in government ministries and the practical subordination of the Auditor General of Pakistan to the executive branch despite its nominal independence.
The fund estimated that federal public funds alone total about Rs40 trillion, with even larger amounts at stake in the provinces. “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 IMF stated in the report, which highlighted a cascade of vulnerabilities that have allowed financial irregularities and embezzlement to persist year after year.
The fund’s findings underscore broader governance issues that could complicate future lending and reform efforts, as Islamabad seeks to stabilise its finances under a $7 billion Extended Fund Facility approved last year. At the heart of the IMF’s concerns is the stalled implementation of the Public Finance Management Act of 2019, which mandated the appointment of a Chief Internal Auditor in each government division by 2020 to work directly with principal accounting officers. “Despite this provision, there has been no implementation and appointment of CIAs,” the report said. While 25 chief finance and accounts officers are currently handling financial management in ministries, a separate role, the IMF noted that these positions remain unfilled in 15 ministries and divisions. “In addition, ministries and divisions with CFAOs lack consistency, interest, and follow-up on the findings of internal audit reports,” the fund added, describing internal audit mechanisms as broadly weak across the board.
The IMF also scrutinised the Office of the Auditor General, which operates as an attached institution of the Federal Secretariat, undermining its full independence. Under Article 171 of Pakistan’s Constitution and Article 7 of the Pakistan Audit Ordinance of 2001, the auditor general is responsible for attesting appropriation accounts and financial statements for federal, provincial and local governments, with certified documents submitted to the president and provincial governors. But the fund warned that this setup creates conflicts: “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.”
Compounding the issue, the office must seek approval from the federal Public Service Commission to hire auditors and faces a staffing shortfall of 1,500 members, largely due to fiscal constraints blocking government clearances. Even though the auditor general’s budget is classified as charged expenditure, not subject to parliamentary vote, the office still depends on the Finance Division for fund releases based on cash availability. “This dependency on the Federal Secretariat for budget releases further limits the OAG’s operational independence,” the IMF said, emphasising that such autonomy is “critically important for Supreme Audit Institutions to perform their tasks as needed and required.”
The report painted a picture of an overwhelmed system, with the auditor general producing more than 6,000 reports annually but seeing little follow-through. “As a result, 75 percent of the 34,000 recommendations made by the Supreme Audit Institution are still pending discussion in the PAC,” the IMF noted, referring to the parliamentary Public Accounts Committee. Audit reports are often excessively long and repetitive, with some spanning thousands of pages due to unaddressed recurring irregularities. For example, the Federal Government Compliance Audit Report for fiscal year 2023-24 runs 4,000 pages. “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 fund observed.
The IMF argued that an effective internal control system is essential for ensuring accountable decision-making on public resources, including through administrative structures and external oversight by a supreme audit institution and the legislature. Without these, “cases of financial irregularities, embezzlement and corruption running into trillions of rupees continue to surface year after year,” the report said.
To address these gaps, the fund called for establishing a fully independent Office of the Auditor General to deliver better value for taxpayers’ money. It recommended developing a system to hold executive authorities accountable for non-compliance with audit recommendations and PAC directives, including amendments to PAC regulations and the Auditor General’s act to empower enforcement.
Looking ahead, the IMF urged streamlining audit reports by focusing on concise recommendations for critical issues, organised by impact and urgency, and incorporating visual aids like traffic light systems to flag severity. It also pushed for stronger parliamentary oversight, mandating prompt PAC reviews of reports, backed by a tracking system in a centralised secretariat to monitor implementation and enhance transparency.
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