The Office of the Auditor General is mandated to carry out audits of all public institutions in Jamaica. It has been observed that the same observations and recommendations are made each year in the Auditor Generals Reports concerning increased misuse and misapplication of public funds.

Following the establishment of new parish councils in some parishes around the country four years ago, there is concern that the trend of misuse and misapplication of public funds may be experienced in these newly established councils just like is the case with the existing councils. The Ministry responsible for local government has decided that consultants should be engaged to hold workshops with the controlling officers of the newly established councils on the importance of transparency and accountability in the use of public funds and the importance of internal controls systems.

You work for a consultancy firm that has been engaged to run these workshops and all the new districts around the country. The lead consultant in your firm has asked you to prepare the materials that you will use in these workshops.

You have been provided with the following information about one of the old parish councils.

The main source of funds for this Council are the grants received from the central government. In addition, the council collects different levies from local businesses operating in the parish. The Council maintains financial records and prepares financial statements annually which are subject to audit by the Office of the Auditor General. The Council has an internal audit department which carries out financial audits. Due to understaffing, and inexperienced staff, the financial statements for the previous three years have not been audited by the internal auditors.

The Council received a grant of US$12 million for the construction of ten community centers, one each in the ten communities under the control of the Council. This is part of a grant from a donor received by the Ministry. The Council as a sub recipient signed an agreement committing to adhere to the grant conditions. The maximum amount that was supposed to be spent on each center is US$1.2 million but the average cost of each of five finished/constructed centers amounted to US$1.8 million, totaling US$9 million. The balance of US$3 million from the grant was spent on paying salaries to Council employees who were in arrears.

The following information was established concerning the centers constructed:

1. Only three of the centers met the design specifications and were going to be commissioned for use. The works on the other two centers were substandard.
2. The award of the contract to build the centers was not done through competitive budding contrary to the grant conditions and agreement. Award was through single sourcing and the basis for doing so was that the contractor selected was going to be cheaper because he is based within the district and needed no mobilization funds.

A review of the previous working papers of the last audit of this Council revealed that the risk of material misstatement was assessed to be high. During the audit it was established that the controls over large volumes of inventory were poor and that there has been no inventory count at the year-end for many years.

4. Due to the current state of the Internal Audit department of the Council, the Minister responsible for Local Government believes that outsourcing its functions instead of maintaining an IA department would yield better results and save on overhead. The lead consultant of your firm asked you to identify and explain six (6) advantages and six (6) disadvantages of Centralizing the Internal Audit Functions of the Council, as he believes these will assist the Minister with his final decision.