In Pakistan’s evolving fiscal governance framework, robust internal audit systems are critical to curbing leakages and ensuring public funds reach their intended destinations. Khyber Pakhtunkhwa (KP), despite pioneering reforms like the 2014 Public Financial Management Act, continues to grapple with systemic weaknesses in its internal audit functions. A 2023 review by the Auditor General of Pakistan (AGP) revealed that only 52% of provincial departments in KP completed mandatory internal audits annually, compared to 68% in Punjab. With the province allocating ₨1.3 trillion in FY2023-24—40% of which targets development—strengthening audit capacities is no longer optional but a fiscal imperative.
The Audit Gap: Capacity vs. Compliance
KP’s internal audit apparatus faces a dual challenge: inadequate human capital and outdated methodologies. The province’s 32 district offices share just 450 trained auditors, resulting in a crippling staff-to-audit ratio of 1:18. Compounding this, 70% of auditors lack certifications in international standards like ISO 19011, leading to reliance on manual, error-prone processes. For instance, audits of the KP Health Department in 2022-23 flagged ₨4.7 billion in irregular expenditures, largely due to miscalculations in procurement documentation—a lapse linked to insufficient training.
Internal Audit Performance in KP (2021–2023)
| Metric | 2021 | 2023 |
|---|---|---|
| Audit Completion Rate | 44% | 52% |
| Average Time per Audit (Days) | 90 | 75 |
| Fraud Detection (₨ billion) | 3.2 | 6.1 |
Structural Hurdles and Operational Risks
Beyond staffing, KP’s audit ecosystem is hampered by fragmented systems and political pressures:
- Siloed Digital Tools: While Punjab uses integrated platforms like the Punjab Internal Audit System, KP’s 14 departments operate on 8 different software systems, complicating data consolidation.
- Political Interference: 30% of auditors in a 2023 AGP survey reported pressure to dilute findings, especially in locally influential sectors like transportation and public works.
- Outdated Risk Frameworks: Only 20% of audits incorporate risk-based sampling, compared to 55% in Sindh, resulting in overlooked vulnerabilities.
Seeds of Reform: KP’s Emerging Solutions
Recent initiatives signal tentative progress. The KP Finance Department’s 2022 Audit Modernization Project (AMP), backed by a $15 million World Bank loan, aims to:
- Digitize Workflows: Piloting AI-powered tools for anomaly detection in 5 departments, reducing manual errors by 37% in initial trials.
- Enhance Training: Partnering with LUMS to certify 200 auditors annually in data analytics and compliance standards.
- Strengthen Independence: Establishing an Audit Oversight Board to shield auditors from departmental influence.
However, challenges persist. The AMP covers only 40% of provincial entities, and cybersecurity upgrades remain underfunded, with just 8% of the audit budget allocated to IT.
Building a Sustainable Audit Culture
To transform KP into a model of fiscal accountability, a multi-pronged strategy is essential:
- Unified Digital Platform: Migrate all departments to a single audit management system, leveraging Punjab’s successful template.
- Performance-Linked Incentives: Tie promotions and bonuses to audit quality metrics, as practiced in Bangladesh’s Comptroller and Auditor General office.
- Citizen Audits: Involve civil society in monitoring high-impact sectors like education through platforms like KP’s Open Budget Portal.
- Legal Safeguards: Amend the PFM Act to criminalize obstruction of audits, mirroring Kenya’s Public Audit Act 2015.
The province’s 2024 decision to raise the audit budget by 25% reflects political will, but sustainable change demands institutionalizing reforms. By 2025, KP aims to certify 60% of its auditors in global standards—a target achievable through sustained investment and cross-provincial collaboration.
As KP navigates post-devolution fiscal complexities, its ability to convert audit findings into actionable accountability will define public trust. The journey from laggard to leader in internal audits is arduous, but not insurmountable—provided reforms prioritize capacity over compliance, and integrity over inertia.
This article was published on PublicFinance.pk.
