Agency 15: Audit Agency

15 min read

The Audit Agency is the fifteenth agency in the community. The agency works to strengthen the community’s agencies and businesses’ internal control, develop and maintain audit regulations and standards, and ensure compliance with bylaws and the law.

The agency is the third in the Regulatory Bureau, which also has IP Agency (agency 13), and Legal Affairs Agency (agency 14). The bureau works to align the community’s social and economic affairs with best practices, the law, and evolving trends. The bureau also serves as an engine for innovation and social-economic transformation.

Audit Agency

The Capital Bank Agency (agency 8) receives investment in the form of partnership interest from limited partners, which it in turn invests in community agencies, including the Audit Agency. The Audit Agency uses these funds for operations, including delivering chargeable services to participants. From its revenues, it pays the Capital Bank a return on its investment, which in turn enables the bank to pay limited partners handsome returns on their investments.

Background on auditing

Auditing refers to the examination and evaluation of a business’s health. There are three main fields of audit, each of which aims to establish how well a business is placed to meet its obligations. Financial audits examine books of accounts and establish whether any material misrepresentations could significantly alter what has been reported. Compliance audits establish whether a business is complying with all applicable laws, codes, and in the case of the community, bylaws and policies. Performance audits evaluate a business’s performance, and from the data available determine whether a business is performing well or not, and what can be done to bolster performance.

Auditing standards and guidelines are an important tool during audits, as they help in reaching objective and practical recommendations. The International Organization of Supreme Audit Institutions (INTOSAI), standards and guidelines are founded on “basic assumptions, consistent premises, legal principles, and requirements” that help in the formation of audit opinions and reports. Some auditing standards and guidelines are anchored in law, while others are specific to the type of audit, environmental factors, and other aspects.

Within the community, audit practice, whether automated or undertaken by contractors, will be guided by these standards. The Audit Agency provides a platform on which community audit standards are consistent with those backed by law or regulation. This platform also enables the agency’s system and auditors to quickly respond to any changes to standards and general audit practice.

Roles of the Audit Agency

With the agency’s executive presidency providing the necessary strategic direction, which is implemented by the operational presidencies, the agency performs a number of duties as detailed below, with the help of its automated system and contractors. The duties include:

  • Checking the accuracy of financial reports
  • Ensuring compliance with policies, regulations, bylaws, legislation, and audit standards
  • Assess the adequacy of internal controls

Checking the accuracy of financial reports

The Audit Agency designs its automated system to apply professional skepticism in its analysis of financial reports. Professional skepticism enables the system to identify a set of conditions or events that could give rise to misrepresentation or misstatement of facts as indicated in financial statements. This means that as the auditor, the system does more than simply check whether the arithmetic is right and whether every item is where it ought to be. Instead, it watches out for red flags that could indicate trouble.

A common red flag is a situation whereby, without any logical explanation, revenues keep going down. An economic downturn or extraordinary events, such as a natural disaster could severely impact a business’s profitability. However, it could also indicate mismanagement, and possibly fraud. The system has extensive information to follow through with such a red flag and establish the facts. Another important measure is a comparison between a business’s financial position and that of other businesses.

In the community, where businesses do not own any assets, the balance sheets of businesses that have been operating for roughly the same amount of time, serve a similar market, and have similar factoring trends will likely be in the same financial situation. When there is a wide variance, it is a sign that one of the businesses is not doing well. The agency can pick this up and investigate further using the other information at its disposal.

Compliance

The Audit Agency’s automated system is embedded with the community’s bylaws, operating manuals, the law, regulations, and any other rules that a business or agency needs to operate within. Contractors who work as auditors have extensive training and exposure to these rules as well. When presented with an audit situation, the system applies these measures to establish whether day-to-day activities are compliant with the rules.

From time to time, the rules change. The agency will hire contractors who constantly monitor the environment to pick up any changes and have them included in the system. In instances where these changes are significant, such as changes in the tax code, the agency hires contractors who prepare training modules that businesses and community public servants are encouraged to study and ensure compliance.

 While external regulators such as tax authorities have their mechanisms to ensure that any dues are paid as required by law, the Audit Agency regularly carries out automated exercises to ensure that all who have these obligations have reported them properly, and paid up.

Internal controls

Businesses and agencies have an obligation to formulate and implement internal controls that ensure that their operations are not exposed to unnecessary risks. The Audit Agency regularly tests these controls to ensure that they can hold up when faced with the challenges they are supposed to control or prevent. The agency constantly reviews ways through which these controls can be strengthened and shares the information with businesses and agencies as part of its audit function.

The implementation of audit recommendations, including measures to strengthen controls is undertaken by the businesses. Through its automated system, and where needed by operational presidencies and contractors, it closely monitors the process to ensure that its recommendations have been adhered to. It also retests them in the future to see whether any adjustments are required.

How the Audit Agency works

Background on presidencies

Every presidency in the community is a four-member entity whose members represent one of the four major demographics: married men (A), married women (B), single women (C), and single men (D). However, a president serves the whole community in their role, rather than only their demographic. Presidents’ diversity and commitment to serve all is provided for in the community bylaws and ensures that all access services without any discrimination.

These four major demographics are evenly split in a normal society.  Each group accounts for between 23 and 27% of the population, with regular fluctuations as people’s status changes. The community appreciates that discrimination across all social categories happens based on marital status, other social categorizations notwithstanding; married men are likelier to dominate other demographics, especially single men and single women.

The community’s infrastructure promotes equal access to economic and social resources and opportunities. The composition of the community as a whole and those who serve it in the community public service is closely monitored to prevent numerical domination, which can lead to nepotism or unequal access.

Besides marital status, the recruitment to be a participant, and to serve in the public service carefully considers other social categorizations, to ensure racial, ethnic, religious, and sexual groups are well represented in the community as they are in the society in which a community operates. These considerations inform the constitution of the community public service. The diversity in community public service, which is provided by bylaws, is aimed at creating a community that is blind to all other considerations besides service to participants. The service is therefore designed to be free of discrimination.

Executive presidency, bureau board, and demographic presidencies

The Audit Agency is served by an executive presidency, comprised of 4 presidents from the four major demographics,[1] which handles strategy formulation and adjustment, as well as formulating and communicating operational procedures for the agency. Additionally, the presidency also facilitates the setting up of the agency’s automated system and adjusts it as necessary to better achieve its goals.

As part of the Regulatory Bureau, the executive presidency forms a bureau board with executive presidencies serving the IP and Legal Affairs agencies. The board acts as a check and monitoring tool for individual presidents and agencies, especially when decisions have far-reaching implications for the community.

Within the bureau board, three presidents from the same demographic form a demographic presidency. There are four such presidencies in the bureau. The demographic presidency performs an advisory role to presidencies and agencies regarding a particular demographic; it does not have operational or executive authority. The demographic presidency also plays an important role in the mentorship and training of new presidents.

Demographic presidency ADemographic presidency BDemographic presidency CDemographic presidency D
Executive presidency, IP (13)13A13B13C13D
Executive presidency, Legal (14)14A14B14C14D
Executive presidency, Audit (15)15A15B15C15D

 

Operational presidencies

As part of the Regulatory Bureau, the Audit Agency is served by a team of 12 operational presidencies. Each operational presidency serves 2 district buildings, where they interact with executive presidencies of the agencies that have their offices in those buildings, and district, village, and branch presidencies. Since each presidency consists of four presidents, there are 48 operational presidents. Each president also belongs to a demographic presidency and a board. The operational presidencies are organized as detailed in this table:

PresidencyPresidentdemographic presidencyAgencies/ districts servedPresidencyPresidentdemographic presidencyAgencies/ districts served
11A11 and 1377A97 and 19
1B21 and 137B107 and 19
1C31 and 137C117 and 19
1D41 and 137D127 and 19
22A12 and 1488A98 and 20
2B22 and 148B108 and 20
2C32 and 148C118 and 20
2D42 and 148D128 and 20
33A13 and 1599A99 and 21
3B23 and 159B109 and 21
3C33 and 159C119 and 21
3D43 and 159D129 and 21
44A54 and 161010A1310 and 22
4B64 and 1610B1410 and 22
4C74 and 1610C1510 and 22
4D84 and 1610D1610 and 22
55A55 and 171111A1311 and 23
5B65 and 1711B1411 and 23
5C75 and 1711C1511 and 23
5D85 and 1711D1611 and 23
66A56 and 181212A1312 and 24
6B66 and 1812B1412 and 24
6C76 and 1812C1512 and 24
6D86 and 1812D1612 and 24

Operational presidents implement the strategic plans and policies that the executive presidency formulates. The presidents also interact with contractors and branch presidencies, offering them any facilitation necessary to serve participants better, collecting important information on the system’s functionality, and advising the executive presidency on how this system can be improved. They monitor the system to ensure it is meeting the participants’ expectations and needs.

Limited partners and branch presidencies

Limited partners and group council

A limited partner is the basic unit in the community. A limited person, usually above 18 years old, but sometimes as young as 16, has been admitted into the community and has invested $20,000 as partnership interest, for which they earn a return. This is regarded as one unit of partnership interest. Over time, a limited partner can add more units of partnership interest, as their business prospers. The more partnership interest units a limited partner has, the more the return they receive from the agency.

A dependent is a minor, or a person living with a disability, under the care of a limited partner. In some instances, a dependent may be a fit adult, who for various reasons is supported by community agencies, and assigned by contract to a limited partner.  Limited partners are responsible for any legal agreements that their dependents enter into, either with community agencies or other participants. Together, limited partners and dependents are referred to as participants.

Participants who are dependents, because they are still minors, can start a business when they reach 12 years of age. This allows them to save up and invest USD 20,000 into the community by their 18th birthday, and possibly as early as 16. Limited partners and their dependents reside in apartments (village buildings). Each apartment has 4 floors, with each floor containing 16 apartments.

Each floor has floor has 7 – 12 limited partners, with each limited partner having 1 – 3 dependents. Each floor therefore has around 25 residents. With four floors, each building has approximately 100 residents. An apartment building also forms a branch.

Captains and branch presidencies

Of the approximately 100 residents in a branch, around 40 of them are limited partners. The limited partners form 4 group councils of around 10 limited partners each. Each group council is diverse, containing different social groups that are reflective of the society within which a community operates. Additionally, a group contains members of the four main demographics: married men (A), married women (B), single women (C), and single men (D).

The council meets at least quarterly and provides limited partners with a platform to interact and discuss common interest matters to their demographic within their branch. One of the members of the group council serves the group as a captain. Four captains who serve the four groups in an apartment building (branch) form a branch presidency. A branch presidency’s membership is drawn from the four main demographics, for the purposes of representation.

Captains are responsible for recruiting limited partners into the community through their council and by extension, branch. The Human Relations Agency’s automated system develops a clear definition of the sort of recruits that the community needs. It then breaks it down to the most basic social organization in the community – group. The criteria and subsequent recruitment process carefully consider that group’s current composition, that of other groups in a branch, other branches, villages, and the district. Therefore, while the captain has the responsibility to recruit, their discretion is limited by what the system recommends. This ensures that not only does the community achieve and maintain balance in all respects, but it also eliminates any chance that a captain would recruit through discrimination or nepotism. 

A captain does not recruit limited partners only from their demographic. Instead, they work to ensure that their recruits are diverse, considering social categorizations, gender, and social status, in addition to demographic groups.

Captains work in concert with their fellow captains in the branch presidency, and other presidencies in a village and district to ensure that the district is as diverse as possible. They are guided by present data on how diverse their district, village, and branch are, and what needs to be focused on to improve. They are also guided by community bylaws, which expressly require diversity as shown by demographic data about a population from which the community intends to recruit limited partners.

The captain serves as a service extension of the Human Relations Agency, though they also act as an interface between participants and other community agencies. Captains help participants navigate the agency’s automated system and other relevant tools used by the different agencies to deliver services.

10 branches form a village. Each of the branch presidencies also belongs to a specific branch board. Branch boards provide an additional check and balance for captains and branch presidencies. Branches are numbered based on the village’s hub, in the direction of the breezeway one-way traffic direction.

Branches' numbering

A hub is formed at the intersection of breezeways between villages. Hub buildings are used for a range of commercial activities that need to be closer to residential areas, such as daycare centers, grocery stores, and emergency centers, among others.

A branch’s number determines with whom its presidency will form a branch board. Branch presidencies 1, 2, and 3 form one branch board, as do 4, 5, and 6, and 7, 8, and 9.

Four villages make a district. The last branch presidency in each village in the community (branch presidency 10) combines with three others in their district or cluster of 3 districts to form additional branch boards. The last branch presidencies in villages 1, 2, and 3 in each district make a board. The last branch presidencies in village 4 of each of the 3 districts in a cluster also form a board.

Branch boards play an important advisory role in the recruitment process. As a captain recruits, he is advised by their board to ensure that their recruitment takes into consideration diversity, and utilizes available data to ensure balance in demographics, profession, social class, and any other relevant consideration.

Branch board formation can be illustrated as follows:

Branch boards and presidencies

Besides belonging to a branch presidency and a board, every captain belongs to a demographic presidency of 3. A demographic presidency is made up of 3 captains within a board, and who serve the same demographic. The demographic presidency mainly serves an advisory function, safeguarding issues common to the particular demographic, and helping in mentorship and support for incoming captains.

The automated system is designed to help participants with all the help they need in matters related to various agencies. However, should they run into problems, captains assist them in navigating the system, or direct them to relevant contractors who help them at a fee.

Automated system

The Audit Agency works through an automated system with which it interacts with participants, community public servants, and contractors. The automated system provides a platform through which businesses and agencies can perform automated audits. If they have issues navigating the system, they can hire contractors for audits, and to train them on how to use the system.

A key part of the automated system is audit automation. Business records detailing transactions and operations are digitized in the community. Automated auditing utilizes cloud computing, artificial intelligence (AI), and machine learning to audit and secure this data. This approach to auditing offers a standardized approach that not only integrates other relevant information from other systems but also makes it easier for decision-makers to make informed decisions after digesting audit recommendations.

Audit automation as done in the community utilizes advanced data analytics that additionally buttresses the soundness of decisions made by entities, such as business associates, community agencies, and the businesses themselves since the information at their disposal is not only complete and accurate, but also free of any bias. In ordinally audit processes, auditors examine samples to make informed guesses about the health and correctness of data. With automation, however, it is possible to test entire data sets, making the information far superior in quality.

The system is intended to minimize the need for contractors working as auditors to assist participants and agencies. While businesses and agencies still have to pay to use the automated audit system, the costs and less than hiring an auditor, with additional savings in time and convenience. Minimizing costs as overhead will make the community more efficient as an economic unit. The system, therefore, aspires to tackle all audit issues that agencies and businesses have. Contractors and operational presidencies constantly monitor the system’s ability to handle current and anticipated audit issues. Where improvement can be had, they recommend adjustments to the executive presidency. 

Contractors

While the agency performs the bulk of its services through the automated system, it needs contractors to perform some day-to-day tasks, such as system maintenance, updates, and assistance to agencies and businesses in instances where the system is unable to help.

The Audit Agency accredits auditors, with its system containing details about their areas of expertise, ratings, academic credentials, professional experience, and any other detail that is relevant for decision-making once an entity decides to hire an auditor. The list is accessible to users, who select who they want to assist them and pay for the services offered. Auditors pay a subscription to appear on the list. The system facilitates self-regulation by auditors so that they can consistently operate at the highest levels of integrity and professionalism.

While auditors are important professionals, the automated system’s efficiency in handling audit issues can be measured by how many auditors there are, and the demand for their services. The more they are, the more likely it is that the automated system is not performing as well as it should be.

Interagency collaboration

Each of the 24 agencies belongs to one of three columns. While columns do not have the level of interaction that boards do, there is nonetheless extensive collaboration between the agencies in a column. The Business Operations Agency (agency 3) collaborates with the Audit Agency on audit reports to determine the health of a business, and their ability to meet their factoring obligations. These points are used to determine whether a business qualifies for the factoring they apply for.

The Audit Agency works with the Commercial Bank Agency (agency 9) in the preparation of audits, as the bank provides extensive information on businesses’ financial activities. The Audit Agency also works with the QHSE Agency to help businesses comply with safety, workplace, and environmental regulations.

The Risk Management Agency is responsible for appraising risks and offering underwriting services to agencies and businesses. The Agency also relies on audit reports to determine businesses’ exposure to risk and prescribe ways that they could mitigate them.

Presidencies’ offices, meetings, and quarterly conferences

Offices

The offices of the executive presidency that serves the Audit Agency are on the first floor of building 15’s western side. Across on the eastern side are the trustee and regulatory bureau operational presidencies that serve the agency. The two presidencies (trustee and regulatory bureau operational) alternate their offices. Trustees sit in their offices in building 15 on Tuesdays and Thursdays, while the operational presidencies use the offices on Mondays and Wednesdays, as shown in this timetable:

Building 3/ Business Operations AgencyBuilding 15/ Audit Agency
MondayTrustee presidencyRegulatory Bureau Operational presidency
TuesdayRegulatory Bureau Operational presidencyTrustee presidency
WednesdayTrustee presidencyRegulatory Bureau Operational presidency
ThursdayRegulatory Bureau Operational presidencyTrustee presidency

The graphic below shows the first-floor layout, with offices for the executive presidency, trustees, and operational presidencies indicated.

Audit Agency offices

Working hours and meetings

Community public servants, including the Audit Agency’s executive presidency and the Regulatory Bureau’s operational presidencies, work from Monday to Thursday, from 8:00 to 8:45 in the morning. This time is dedicated to meeting clients and normal operational duties as the office requires. On Thursday, the whole presidency (four presidents serving A, B, C, and D) meets for a 45-minute meeting from 9:00 to 9:45 in the morning.

On the last Friday of each quarter, between 9:00 AM and 12:00 PM, each demographic presidency meets. The three-member presidency discusses common bureau matters that are of interest to the demographic they serve. On Saturday, again between 9:00 AM and 12:00 PM, the whole board meets, where the presidents present their input from the previous day’s demographic presidency meeting, and prepare for the quarterly conference. The aim is to have a cohesive presentation during the quarterly conference but tailored to specific demographic interests.

Quarterly conferences

Quarterly conferences are held on the last Sunday of each quarter, from 9:00 AM to 3:00 PM, with a lunch break in between. During quarterly conferences, each demographic presidency sits together in the same row.

Quarterly conferences are held in District Buildings 5 and 17. Each building has a lower and higher assembly court. The different demographic groups use the assembly courts as follows:

BuildingAssembly courtDemographic
5Lower courtMarried men (A)
5Higher courtMarried Women (B)
17Lower courtSingle women (C)
17Higher courtSingle men (D)

Each of the four assembly courts has seats for 480 presidents representing the respective demographic. In the diagram below each of the 4 courts is illustrated. The ceiling of each court has an elliptical arch that enables executive presidents, who are the only ones who make a presentation during the conference, to speak without the need to amplify their voice. The 480 seats are easily rotatable to enable presidents to face whoever is speaking.

Audit Agency - layout of conference hall

Each of the four courts has an identical arrangement and number of seats. The exact arrangement of each court can therefore be illustrated using one court, in this case, building 5’s lower court that is used by married men (A).

Audit Agency, conference hall

Within an assembly court, the 480 presidents are arranged in terms of demographic presidencies of 3. The Regulatory Bureau’s demographic presidency for married men (13A, 14A, and 15A) sits as highlighted in the graphic below. The 12 Regulatory Bureau’s operational presidents for married men (A) are organized into 4 demographic presidencies: 1,2, 3/ 4, 5, 6/ 7, 8, 9/ 10, 11, and 12.

Audit Agency, demographic seating

[1] These demographic groups are married men (A), married women (B), single women (C), and single men (D).