The International Conference. For Internal Auditors. Dubai

Transcription

1 The International Conference For Internal Auditors Dubai 6 9 May 2018

2 Preface The Supreme Audit Institutions (SAIs) exert enormous efforts to strengthen and enhance the internal audit within the entities subject to audit. This came in recognition of the vital significance role of the internal audit units at the said entities in cooperation with the Senior Management in their quest for appropriate decisions. The Topics addressed: The research paper will address the following pivots: First Pivot The role on the international organizations in strengthening and enhancing the internal audit within the entities subject to audit. Second Pivot The role of the State Audit Bureau of Kuwait (SAB) in strengthening and enhancing the internal audit within the entities subject to audit. First Pivot The role of the international organizations in strengthening and enhancing the internal audit within the entities subject to audit: 1- The international Organization of Supreme Audit Institutions (INTOSAI) that includes all the World`s Supreme Audit Institutions in its membership, as well as to the emerging Regional Organizations recognizes the significant role exerted by the internal audit units at the concerned entities. The said matter should be addressed by the concerned 2

3 organization within the processes of preparing the International Auditing Standards, the General and Special Guidelines and the INTOSAI Governance Guidelines. Perhaps the most important issued guidelines in this regard are the INTOSAI guidelines of Good Governance regarding the INTOSAI instructions on the Internal Auditing Standards at the Government Sector, especially the following two guidelines : No. (9140) regarding the internal audit independence at the public sector. No. (9150) regarding the coordination and cooperation between the SAIs and the internal auditors. In addition to no. (1610) and what came in the general guidelines of the accounting and financial auditing with reference to the utilization of the internal auditors work. 2- The Asian Organization of Supreme Audit Institution (ASOSAI) prepared a research upon the Evaluation and Improvement of Internal Audit Systems - the Correlation between the SAIs and Internal Audit Units which included the following topics : Study and prepare a presentation based on an objective assessment of the current status of the internal audit system at the public sector at the countries members of the ASOSAI, in addition to the correlation between the member SAIs and the entities of Internal Audit Units. Identify the obstacles facing the Internal Audit Work and propose effective solutions to improve the internal audit system. Review the best practices of Internal Audit System and develop cooperation and coordination mechanism for the SAIs and the Internal Audit Units at the entities subject to audit. 3

4 The research paper referred to the fact that the Public Sector Governance requests the Audit Officials to perform their duties regarding the management of the Public Resources through accountable and wise decision-making processes, as well as to the presentation of the outcomes and findings. In achievement of the said purpose, it is then necessary to establish independent Internal Audit Units at the Public Sector to support the Audit Officials in pursuing their duties with the required efficiency in order to assure good governance, efficient and reliable internal audit tasks and the cooperation between the SAI and the Internal Audit. The research paper included questionnaires distributed among the SAIs and the Ministries of Finance of (45) Countries members of the ASOSAI, only (26) SAIs and (18) ministries of finance provided their responses to the distributed questionnaire. The research paper concluded with the following recommendations and best practices: First The components of the internal audit system Assessment: 4

5 Human Resources: - Sufficient number of employees. - Qualifications & Benefits. - Tools and Technology. Audit Standards & Systems: - The Standards. - Quality Assurance System. - Performance Evaluations. The Structure: Classification of the Audit Executive Head. The Audit Scope. The Internal Audit Policy Unit. Centralization versus decentralization. The Internal Audit Tasks. Governance: Audit Committee. Finance. Entities etc. Mandate. Reports. Relations. Audit Services & the Role of Internal Audit: The Role of Internal Audit. Results Follow-up. Services Types. Audit Process Planning. 5

6 A-Governance: Availability of a mandate or legal rules: The entities are required by several laws and systems to establish internal audit units. However, even in countries that do not have an official mandate, the independence can still be maintained and the internal audit units can perform efficiently and effectively with the existence of proper audit mechanisms that ensure good governance. Establishment of Audit Committee: A well-designed audit system can increase the efficiency of the internal audit tasks and help the internal auditors to improve the quality of their work, reports, and findings. The tasks of the audit body that is in charge of internal audit in the public sector or the Audit Committee are of a great importance for monitoring the performance and development in internal audit. Provision of Finance: Provision of adequate funding and manpower is considered vital for empowering internal audit units to fulfill their responsibilities. In addition to provision of funding, proper tools and technologies should be provided to enhance the audit activities standard. 6

7 B-Structure and Reports: Internal audit units shall function independently from any influence of the executive managers and all other departments within the entities. In order to ensure independency of the internal audit units, internal audit should be appropriately developed in the organization. As for the reports, the standards of Internal Audit Institute state that the heads of internal audit units shall submit an administrative report to the heads of audit departments, and a functional report to the Audit Committee or other authorities. C-The Need for a Professional Practice Framework: A professional practice framework should be developed to guide internal auditors in performing their mandated tasks. This framework shall include the following six features: 1) Internal audit standards and manuals. 2) Code of Ethics / Code of Professional Conduct. 3) Internal Audit Charter. 4) Quality assurance and audit system. 5) Reports mechanism. 6) Internal audit system evaluation. 7

8 D-Development of Human Resources: Audit efficiency: The roles of internal auditors have been shifted from the traditional role of merely performing their audit works into more modern roles where they almost participate in all aspects of the entity s operations such as auditing their efficiency, economy, and effectiveness. Besides, internal auditors submit recommendations for improvements in case there were gaps. They also carry out financial, operational, and strategic risks assessment to ensure that the control system of the entity is strong enough. Such various roles require a sufficient number of qualified internal auditors in the internal audit units in order to carry out high quality internal audits. Continuous Professional Development (CPD) : Internal audit programs shall be provided regularly and constantly, either in the official training halls or on job training, for the newly recruited or old internal auditors. These training programs should focus not only on the technical aspects of audit and information technology, but also on the required skills for audits (such as logic, communication, negotiation, analysis, and behaviors management). Training needs should be assessed to identify the required and available skills in order to serve as a basis for recruiting the qualified internal audits and their training as per the defined training needs and required skills. The strategy of an effective capacity building involves smart partnership. Such partnership should be developed among the internal audit units, SAIs, professional institutions, fraud investigation bodies, 8

9 and the other civil society organizations in order to share knowledge and ideas or to conduct training programs. In addition, membership in the professional institutions shall be promoted to provide professional support and guidance in internal audit. Incentives and Rewards: Internal auditors shall be given incentives, which can include tempting rewards, as well as appropriate salaries and a progressive career structure to decrease the aspects of inequality with the private sector. Other incentives can be in the form of providing external training or opportunities for professional qualifications. E- The internal audit services update within the public sector: Governments are currently seeking higher levels of transparency through questioning the utilization of public funds, and the efficiency in the provided services. The operations and government processes complexity create new challenges that require changes in the internal audit profession. The internal audit units within the public sector need to re-define their roles to shift the interest and to adopt the culture of facing those challenges. This matter requires the development and implementation of innovations. Those innovations may include changes on the internal audit structure and management, and create new services and methods. Alternatively, this may requires changing the audit process using technology, which aims to develop the services of the internal audit quality and efficiency. As well as, extending the 9

10 services to increase the added value of internal audit, enhancing the employees skills, their performance, and spirits. Internal audit services can be classified into services that deal with audit and ones that does not. The first includes inspection, audits, cost effectiveness analysis, and implementation support. As for the services that are not related to audit, they deal with providing consultancy services, or projects management services. The scope of internal audit services have extended to include not only regulatory control, but also risk management, and follow -up of fraud, the IT risk assessments and governance. It worth mentioning that there should be a clear separation between the internal audit services conditions and the ones not related to them. That is because each of them requires a different level of compliance, and has different impact on independency of the internal audit task. Secondly cooperation and coordination between internal audit units and the SAIs: Legal mandate or the official structure: The official mandate may be considered a strong stimulator to insure the effective cooperation among the SAIs and the internal audit units. In the absence of the legal mandate, the alternative is the organizational structure framework in the form of official meetings between the SAI and the internal audit unit that are considered the necessary mechanism to assure the cooperation. Audit planning,methodology and evaluation: The coordination between the SAI and the internal audit unit is important to avoid duplication, and to increase the audit efforts. Coordination in audit planning: 10

11 - Through auditing the systems, the internal audit unit assessment may be the base of the SAI audit. - During the assessment of the internal audit system within the entity, the SAI may guarantee adequacy as a base to identify the scope and level of audit procedures that are used. - The SAI and the internal audit unit may cooperate in auditing the entity to complete their findings with each other. - - The internal audit unit may use the SAI s Guidelines as well. Human resources: The efficiency and effectiveness of the state audit efforts could be developed through a suitable staff that has the required skills. * Obstacles Inadequate laws. Lack of adherence. Realization that a SAI is a supreme institution. Not understanding the role of SAI and the internal audit unit. Disparity of efficiency of SAI and internal audit unit auditors. Variations in level of independence. Others (to be determined). * Improvements Legal mandate. Clarifying roles and responsibilities. Enhancing communication between the SAI and the internal audit unit. 11

12 Holding official meetings. Presenting mutual training programs. Establishing a mutual data bank. Sharing reports/documents. Recommendations A- Evaluating internal audit system: - Ensuring the independence of the internal audit unit, including the existence of the legal mandate and regulations, setting a mechanism for reports and for audits committee, and providing enough resources. - Establishing a framework for professional practice, including standards for internal audit and manuals, rules of professional conducts and quality control system. - Improving human resources, including recruiting efficient auditors, and continuous professional development and providing rewards and incentives - Developing internal audit services for the public sector B- Correlation between SAIs and Internal Audit Units: - Setting descriptive standards for internal audit which determine duties, terms of reference and independence of internal audit unit 12

13 - Editing forms to avoid duality in work, through the following: 1) Regular meetings between SAI and the internal audit unit to establish good communication and clarify roles of each party. 2) Submitting internal audit unit plan to SAI, which can be considered by the SAI before finalizing the audit plan. 3) Mutual training programs - Absolute assurance by law on the role of internal audit units, and the official basis, which facilitates cooperation and coordination with the SAI. In concluding this part, we should emphasize that the State Audit Bureau of Kuwait (SAB) constantly seeks to participate in all activities of international organizations whenever possible. Perhaps the most prominent participation is its effective contribution with this research considering SAB`s complete conviction of the pivotal role of the internal audit units performed by the entities subject to SAB audit. As well as the need for coordination and cooperation between the SAIs and these units, besides supporting them that leads to elevating the level of performance and efficiency of those entities in a detailed manner which will be demonstrated later. Second Pivot: SAB initiatives to enhance internal audit in entities subject to its audit: 1- In 1996, SAB officially addressed all entities subject to its audit, emphasizing the importance of enhancing and supporting its internal audit systems and establishing organizational units with high efficiency to handle internal audit works in those entities. Concurrent with the need to assign their dependence to the highest administrative authority in the entity, in a manner 13

14 which insures their independence and enable them to perform the assigned roles to the fullest. Due to SAB constant efforts to highlight the many disadvantages in internal audit works at entities subject to its audit, the Councils of Ministries issued its decision No. (181) on 11/11/2006 that approves the recommendations presented by the Ministry of Finance concerning financial affairs systems in government entities regarding the importance of establishing internal audit units and supporting them with appropriate accounting expertise and the significance of providing training requirements which support efficiency and quality of performance. 2- SAB later noticed the continues weakness of internal audit systems in some entities, in addition to the lack of internal audit systems in other entities. For that reason, SAB addressed the concerned entities again in 2009 to emphasize the importance of enhancing their internal audit systems, activate the internal audit units roles and support them with qualified personnel with expertise, and grant them with more independence by assigning their dependence the highest administrative authority at the entity. 3- Recently, during , SAB began studying the internal systems at the entities subject to audit and performing evaluations regarding their effectiveness. This came in accordance with the request from the budget and Financial Accounts Committee at the National Assembly. The aforementioned study included a statement of entities with organizational structures lacking an internal audit unit, and those with internal audit units accompanied with a statement of their administrative dependence and their efficiency in performing assigned tasks. It also included a detailed statement demonstrating SAB final assessment on the adherence of the entities subject to its audit to carry out the required procedures to avoid remarks and financial violations mentioned in SAB`s reports of the 14

15 final accounts. This is done in a manner which can be retrieved later and in detail on the following links: Government ministries and administrations 2014/2015. Independent entities 2014/2015. Government ministries and departments 2015/2016. Independent entities 2015/2016. Independent entities (Oil) 2015/ Annual Research Competition: We should highlight SAB role in organizing an annual research competition for its staff, which resulted in a great number of researches concerning internal audit. 5- Training Programs and Meetings: In accordance with the second goal of SAB strategic plan ( ) concerning supporting and developing institutional capacities of SAB and professional capacity of its staff, SAB conducted and organized many training programs and meeting associated with the internal audit tasks and the requirements to establish internal audit units at the entities subject to its audit. The said came within the adoption of an aspiring strategy that aims at achieving sustainable professional excellence for its auditors. Many internal audit employees of entities subject to SAB audit participated in these training programs and meetings. 6- General Audit Manual: In this regard, it should be noted that the general audit manual issued by SAB included a detailed chapter on the importance of examining internal audit at entities 15

16 subject to SAB audit. The said is to be achieved in a manner which insures understanding internal audit activities and identifying whether they were efficient and subjective or not, as well as to their dependability at the audit planning stage. 7- SAB participation in international and regional activities, like INTOSAI, ASOSAI, ARABOSAI and GCC Council: SAB was always keen on communicating with other SAIs on the Arab, regional and international levels. This entails exchanging ideas, discussing different issues related to audit and assuring the implementation of all training programs. Furthermore, SAB has been always keen on positive participation in all activities of the abovementioned organizations as long as it is possible. Probably the most prominent participation was SAB s participation at the 9 th ASOSAI Research Project. This research is considered as the link of research efforts that are related to internal audit and the fruit of cooperation between internal audit units and SAIs. Twelve SAIs were chosen including SAB Kuwait as members in this research project (enclosed annex paper submitted by SAB Kuwait). 8. SAB initiative for supporting internal control systems in the entities subject to SAB audit and strengthening the capacities of their internal audit units: Throughout 2017, and based on SAB efforts mentioned earlier, SAB deemed the necessity of adopting an ambitious project that aims to provide professional support to internal audit units in the entities subject to its audit. As well as to make multi-leveled intensive training courses for the employees in those units that would qualify them to perform their roles in an efficient and effective manner. In addition to developing internal audit manuals that focus on following the 16

17 latest audit standards applied in this respect in cooperation with related local, regional and international organizations and institutions. SAB has communicated with the General Secretariat of the Supreme Council for Planning and Development to coordinate with the UNDP in order to provide the necessary financial, technical and professional support in this regard. This was done through one of the biggest consulting offices specialized in this field by providing the office s vision regarding the scheduled introductory seminars, training programs besides the internal and external workshops, so as to ensure the improvement of SAB staff skills in this field. The same applies to employees of internal audit units in the entities subject to SAB audit along with choosing some of SAB auditors to train with them, according to their capacity and efficiency, and to train them to become trainers. That was done by coordinating with the Training and International Relations Department in SAB. In order to allow SAB to implement its ambitious project perfectly and what that would bring such as positive effects on the efficiency and effectiveness of internal audit department in the entities subject to SAB audit. Annex The Paper submitted by the State Audit Bureau (SAB) As an active member in this research project, SAB prepared a paper that addressed in complete transparency and credibility what was detected as flaws, at that time, regarding many aspects related to this matter and it was divided into two major parts: 17

18 Part I : Evaluating and developing internal audit systems: 1- Basic Information: An overview of the government entities concerned with auditing the Ministries and Government Departments in the State, which are limited to the State Audit Bureau (SAB) in accordance to SAB`s Establishment Law No. (30) for the year 1964 and the financial supervisors of the Ministry of Finance (currently called the financial Supervisors Authority), opposed to the auditors of Civil Service Commission regarding employment affairs. Moreover, a statistical chart was presented regarding the ministries, government department and entities with attached budgets that have internal audit units, as well as to the numbers of auditors they had. 2- Governance: SAB pointed out that there were no restrictions or laws regarding the process of establishing internal audit units at the government entities. However, the Council of Ministers has already issued decision No. (181) on 11/11/2006, which approved the recommendations submitted by the Ministry of Finance regarding the Financial Affairs Systems at the government entities with regards to the importance and the support of establishing internal audit units. Yet, the process of establishing internal audit units at the government entities is still subject to management decision. 3- Structure: SAB clarified that internal audit works do not have sufficient independence to perform their responsibilities at that time, as they are associated to the financial affairs department of the Government entities. Therefore, they are considered as an annex associated to the financial department. The said works are represented in the terms of references and responsibilities mentioned below: Following-up the circulars issued by the Ministry of Finance and their implementation. 18

19 Reviewing expenditure and revenue forms prior to sending them to the financial comptroller s office in the Ministry of Finance. Auditing the templates and data related to the process of preparing the final account, the budget, quarterly data and inventory budget committee drafts. Auditing operations of the staff salaries pay orders. 4- Standards and Audit Systems: SAB pointed out the lack of a unified or approved laws and regulations nor any unified policies or procedures issued at that time regarding internal audit. On the contrary, there were multiple procedures according to the government entity. Additionally, there were no arrangement regarding quality assurance nor any tools that would assist the performance evaluation operations. However, some internal audit units has manuals that may help guide the auditors in pursuing their assigned tasks. 5- Human resources: The paper submitted by SAB clarified the inevitability of supporting the senior leaders of the internal audit units at the Government Departments and Ministries to enable them of performing their assigned tasks in and efficient and effective manner. Moreover, it is vital to support those units with a specialized and an experienced staff and to strengthen their capacities through specialized professional training programs. 6- Services: Internal audit units depends on the transactions of the entities subject to audit. However, the audit mechanism differs from one government entity to another based on the requirements and work nature. Nonetheless, audit operations usually include the expenditure and revenues and the extent of their compliance to the laws, circulars and regulations issued in that respect. The said units may rarely prepare periodical reports on the audit results and recommendation, 19

20 which are sent to the concerned entities (ministry`s department financial affairs department). Afterward, the internal audit units comment on the responses submitted by the said entities. 7- Evaluating internal audit tasks: The paper prepared by SAB at that time, included some facts regarding the non- compliance of the government entities with the recommendations issued by the Council of Ministers concerning their establishment of internal audit units. As well as to the poor performance of some other units due to lack of subjectivity and independence because of their dependence to the same executive financial department. The before mentioned is explained by several reasons, which are summarized in the following: The lack of unified or approved laws and regulations nor specified procedure and policies for internal audit process. The non- compliance with international standards approved in this regard or to the professional procedures standards of the Internal Audit Institute (IIA). The weak coordination processes between the SAI and the Internal Audit Units on one hand, and with the departments following the entity from the other hand. The inadequate training programs addressed toward the current employees and the new appointees, as well as to the lack of qualified and professionally specialized employees. The lack of advanced automated audit systems. SAB Recommendations: The State Audit Bureau (SAB) concluded the research paper with recommendations to be summarized the following manner: 1) The entities subject to audit are required to establish internal audit units or re- structure the existing units, which are to be attached directly to the highest administrative authority at the said entity in assurance of its independency. 20

21 2) The State Audit Bureau (SAB) or the Ministry of Finance shall take the initiative to prepare a guidance of internal audit that complies with the International standards issued in this regard and the other special professional standards adopted by the Institute of Internal Auditors (IIA). 3) Strengthen the performance of Internal Audit Units, as well as to identify the professional requirements and develop Performance Quality Standards. This is to be made alongside to periodical reports, prepared by the Audit Units, regarding the work results in preparation for their submission to the Senior Management. 4) Employ qualified employees with the required appropriate specialties and expertise at the internal audit units. The said is to be achieved through a careful and accurate selection process by the help of qualified accounting experts in order to address the vulnerabilities of the said units. 5) Organize intensive and continuous advanced, specialized and professional training programs. Part II : The relationship between SAB and the internal audit units: There are no rules or regulations that control the relation between the State audit Bureau (SAB) and the Internal Audit Units at the entities subject to its audit. The coordination and the cooperation shall not be considered as official or organized operations, where that depends entirely on personal judgment. 21

22 In retrospect, it is obvious that the level of attention given by international and regional organization of supreme audit institutions towards the important role of the internal auditor in entities subject to their control is very high. Additionally, these organizations convinced by that vital and important role done by internal audit units has taken upon themselves the responsibility of encouraging member SAIs to support these units and to work on strengthening cooperation and communication between them and in way that ensures more effectiveness regarding the audit missions assigned to those units. 22