derby davis coordination and cooperation between sais and internal auditors in the public sector

8/8/2019 Derby Davis Coordination and Cooperation Between SAIs and Internal Auditors in the Public Sector

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Coordination and Cooperation between SAIs and Internal Auditors in the Public Sector

ICGFM Winter Conference

Bonnie Derby, [email protected]

Beryl H. (Berri) Davis, The [email protected]


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Confere nce Theme: Practical Uses of New Sta ndards t o Enhance Transparency and P rogram P er f or manc e

There are f our c ornerstones of good governanc e: public off ic ials; the governing body; internal auditors; and external auditors (SAI s).Thus, the relationship between internal auditors and SAI s is both c ritic al and benef ic ial to good governanc e and the eff ec tive use of public resour c es.This presentation willf oc us on enhanc ing transparency and program

per f or manc e using INTOSAI GOV 9150approved November 2010(ref erenc es noted in parentheses ).


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Introduc tion

Evolution of INTOSAI GOV 9150, C oordina tiona nd C oope r a tion Be twee n SAIs a nd Inte rna l Auditor s in the P ub lic Sec tor

INTOSAI P rofess iona l S ta nda rds C ommittee (PSC) /IIA MOU

IIA r ep r ese nta tive pa rtic ipa tes as a n obse r ve r in the INTOS AI PSC S tee ring C ommittee a nd S ubc ommittee on Inte rna l C ontrol


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INTRODUCT

ION (c ontinued)

IIA and INTOS AI S ubc ommittee on Internal Control begin c ollaboration on twojoint papers to be inc luded in INTOS AIs Guidanc e of good governanc e (INTOS AI GOV)

Independenc e of an internal auditor in the public sec tor .Interac tion between external and internal auditors in the public sec tors.

INTOS AI GOV 9150,Coordination and CooperationBetween S AIs

and Internal Auditors in the P ublic S ec tor


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Roles and Responsibilities

In developing c oordination and c ooperation between S AIs and internal auditors the spec if ic roles of both parties are rec ognized. (3 .1.1)

Internal auditors workf or and usually report to the audited entity, while S AIs f unc tion as external auditors and issue their reports to the legislature or parliament. (3 .1.2)


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Roles and Responsibilities(c ontinued)Internal Audit

INTOS AI def ines an internal audit f unc tion as the f unc tionalmeans by whic h the managers of an entity rec eive an assuranc e f rom internal sour c es that the proc esses f or whic h they are acc ountable are operating in a manner whic h willminimize the probability of the occ urrenc e of error , ineff ic ient and unec onomic prac tic es, or f raud. (3 .2.1)The IIA def ines internal auditing as an independent, ob jec tive assuranc e and c onsulting ac tivity designed to add value and improve an or ganization's operations. It helps an or ganization acc omplish its ob jec tives by bringing a

systematic, disc iplined approac h to evaluate and improve the eff ec tiveness of riskmanagement, c ontrol, and governanc e proc esses . (3 .2.2)


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Roles and Responsibilities(c ontinued)

Within the c ontext of roles and responsibilities, the f ollowing general princ iples are applic able acc ording to INTOS AI GOV 9100: (3 .2.3)

Internal auditors examine and c ontribute to the ongoing eff ec tiveness and eff ic iency of the internalc ontrol struc ture through their evaluations and rec ommendations and theref ore play a signif ic ant role in eff ec tive internal c ontrol.

Management of ten establishes an internal audit f unc tion as part of its internal c ontrolf ramework. In this tradition, the role of internal auditors is a c ritic al part of an or ganization's internalc ontrol struc ture.


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However , the mandate of an internal audit f unc tion does not inc lude implementation of spec if ic internalc ontrol proc edures in the or ganization.This is the responsibility of management.

An eff ec tive internal audit f unc tionmay c over the review, appraisal, and reporting on the adequacy of c ontrols in order to c ontribute to the improvement of the internalc ontrol system.

The internal audit f unc tion should utilize a c ontinuous, risk-based approac h,whic h should c onsider the riskc riteria established by the governanc e bodyand management.


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Although internal auditors are part of the or ganization they audit,c ertain saf eguards c an be put in plac e to help protec t the

independenc e and ob jec tivity of the internal audit f unc tion. The internal audit f unc tion should be f unc tionally and or ganizationally independent as f ar as possible within its respec tive c onstitutionalf ramework. An internal auditor s work and c onc lusions should be impartial, neutral,

and f ree f rom c onf lic ts of interest.


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In most c ountries, S AIs have a wider range of responsibilitiesf or reportingon the ac tivities of audited entities than do private sec tor auditors. The f ull sc ope of government auditing inc ludes f inanc ial, c omplianc e, and per f or manc e audits, as well as spec ial examinations and f orensic audits.(3 .3 .2)As external auditors, S AIs have the responsibility of evaluating the eff ec tiveness of the internal audit f unc tion. If an internal audit f unc tion is judged to be eff ec tive, c ooperation between the S AI and the internal auditor will likely benef it both parties. (3 .3 .5)


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Benef its of Coordination and Cooperation

A range of benef its may be obtained f rom c oordination and c ooperation between S AIs and internal auditors, inc luding: (4 .1)

An exc hange of ideas and knowledge;

S trengthening their mutual ability to promote good governanc e and acc ountability prac tic es, and enhanc ing managements understandingof the importanc e of internalc ontrol;


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Benef its of Coordination and Cooperation(c ontinued)

More eff ec tive audits based on:

Promoting a c learer understanding of respec tive audit roles and requirements,

Better inf or med dialogue on the risks f ac ing the or ganization leading to a more f oc used audit and, c onsequently, more usef ul rec ommendations,

Better understanding by both parties of the results arising f rom eac h other s work whic h may have an impac t on their respec tive f uture work plans and programs;


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More eff ic ient audits based on:

Better c oordinated internal and external audit ac tivity resulting f romc oordinated planning and c ommunic ation,

Ref ined audit sc ope f or S AIs and internal auditors;

Reduc ing the likelihood of unnec essar y duplic ation of audit work(ec onomy);

Minimizing disruption to the audited entity;


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Improving and maximizing audit c overage based on risk assess ments and identif ied signif ic ant risks; and

Mutual support on audit rec ommendations whic h may enhanc e the eff ec tiveness of audit ser vic es.


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PotentialRisks of Coordination and Cooperation

Inherent in the c oordination and c ooperation proc ess are c ertain risks whic h should be managed, suc h as: (5.1)

Any c ompromise of c onf identiality, independenc e, and ob jec tivity;

Possible c onf lic ts of interest;

Dilution of responsibilities;

Use of diff erent prof essional standards relating to independenc e or audit;


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PotentialRisks of Coordination and Cooperation(c ontinued)

Possible diff erenc e of c onc lusions or opinions on the sub jec t matter;

The possibility that potentialf indings of the other auditor may be prematurely c ommunic ated to an external party, bef ore suff ic ient audit evidenc e exists to support those f indings; and

Not c onsidering c onstraints or restric tions plac ed on the other auditor

in deter mining the extent of c oordination and c ooperation.


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PotentialRisks of Coordination and Cooperation(c ontinued)

Internal audit work in an or ganizationc an also be per f or med by a ser vic e provider . (5.2)

The ser vic e provider should not per f or m internal audit work if they are also the external auditor or if they provide non-auditc onsultingser vic es to that or ganization as it endangers independenc e and ob jec tivity.


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Grounds f or Coordination and Cooperation

Coordination and c ooperation are built on c ommitment,c ommunic ation, c ommon understanding, and c onf idenc e (6 .1).

Commitment (6 .1.1)Eff ec tive c ooperationc an only be ac hieved if both parties are

c ommitted to developing c oordinated and eff ec tive audit ser vic es.

Auditc ommittee enc ouragement may improve the likelihood of succ ess f ul c oordination and c ooperation.


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Communic ation may inc lude

The exc hange of audit reports and management letters; In some c ir c umstanc es, granting acc ess to eac h other s audit programs and audit doc umentation under c onf identialityprovisions.


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Conf idenc e (6 .1.4 )There should be mutual c onf idenc e based on the rec ognition that

internal and external audits are c onduc ted within relevant prof essional standards.

There should be c onf idenc e that any inf or mation exc hanged is treated prof essionally and with integrity and within prof essional

ethic al guidelines. This exc hange of inf or mation should inc orporate suff ic ient c onf identiality provisions.


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MODES OFCOOPER ATION

A broad range of ways to ac hieve c oordination and c ooperation between S AIs and internal auditors are possible (7 .1):Communic ation of audit planning/audit strategy (e.g. joint

planning sessions ); Collaborating on c ertain audit proc edures, suc h as c ollec ting

audit evidenc e or testing data

Communic ation of audit reports to eac h other;


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MODES OFCOOPER ATION

Ways to ac hieve c oordination and c ooperationc ontinued:Or ganizing c ommon training programs and c ourses;

S haring training material, methodologies, and audit work programs; Granting acc ess to audit doc umentation; Lending of staff (e.g. training on the job); Use of c ertain aspec ts of eac h other s work to deter mine the

nature, timing, and extent of audit proc edures to be per f or med.


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W AY S TO ORG ANIZE THECOORDIN ATION ANDCOOPER ATION Coordination and c ooperationc an either be or ganized f or mally or inf or mally (8 .1).For mal c oordination and c ooperationc an be or ganized through legislation, f or mal agreements, or protoc ols (8 .2).In c ertain low-risk engagements, S AIs and internal auditorsmayc oordinate/c ooperate in a more inf or mal way (8 .3).

Coordination and c ooperation should be doc umented in c omplianc e with applic able auditing standards (8 .4).

IPPF Prac tic e Advisor y 2050-1, Coordination, identif ies ways f or c oordination without duplic ating eff orts.


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ARE AS OF COORDIN ATION ANDCOOPER ATION

Areas of c oordination and c ooperationmay inc lude (9.1):Evaluating the audit entitys (see also INTOS AI GOV 9100 ):

Internal Controlf ramework;

Financ ial statements Complianc e withLaws and Regulations; Per f or manc e indic ators and per f or manc e studies; Public Governanc e; and

Risk management (INTOS AI GOV 9130 ).Doc umenting the audit entitys systems/operational proc esses;

Developing audit proc edures; Per f or ming audit proc edures, (e.g. audit of multi-loc ated entities); Investigating f raud and c orruption allegations.


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PH ASES &CONTENT OFCOORDIN ATION ANDCOOPER ATION Coordination and c ooperationc an happen during the entire audit proc ess

(10.1.1): Preliminar y to the engagement;

At the planning stage; Per f or ming f urther audit proc edures; Conc luding, f inalization, and reporting stage; andFollow up of audit f indings and rec ommendations.

The nature of the assess ment and c ommunic ation between S AIs and internal auditors should be doc umented in their respec tive audit doc uments (10.1.2).


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PH ASES &CONTENT OFCOORDIN ATION ANDCOOPER ATION

Preliminar y to the engagement (10.2):Obtain an understanding of the audited entity and of eac h other s f unc tion;

Consider the sc ope of the work per f or med by eac h party; Evaluate the use of the internal auditor s work bef ore deter mining its

impac t on the nature, timing, and extent of audit proc edures to be c onduc ted. This involves ensuring that the internal auditor whoc arried out the work was independent of the audited entity or ac tivity and was ob jec tive

in c arr ying out that work.


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In preparing the audit plan and deter mining audit strategy, the S AI may evaluate the eff ec t of the internal auditor s work on the external audit proc edures (10.3 .1).When using the internal auditor s work, the S AI should evaluate (10.3 .2):

The independenc e of the internal audit ac tivity (IPPF S tandard 1110); The ob jec tivity and tec hnic al c ompetenc e of the internal auditor (IPPF S tandard 1120); Whether the work of the internal auditor is c arried out with due prof essional c are

(c onc lusions based upon audit ob jec tives, acc eptable methodology, and suff ic ient evidenc e) (IPPF S tandard 1220);

The eff ec t of any c onstraints or restric tions plac ed on the internal audit f unc tion by anyparty or individual.


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The work of internal auditors may be used to obtain audit evidenc e nec essar y to ac hieve the ob jec tives of S AI audit proc edure (10.4 .1).The S AI should evaluate the internal auditor s work to deter mine (10.4 .2):

The work was per f or med by persons having appropriate skills/expertise; The work was properly super vised, reviewed, and doc umented; The suitability of the workmethods employed by the internal auditor; S uff ic ient, appropriate, and relevant evidenc e was obtained to draw reasonable

c onc lusions; The c onc lusions reac hed are appropriate in the c ir c umstanc es and reports prepared are

c onsistent with the results of the work per f or med; and Any f indings reported on by the internal auditor have been properly addressed by the

audited or ganization.

.


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Where nec essar y, the S AI per f or ms additional audit work to obtain

this assuranc e (10.4.3).Doc umenting the assess ment of the dec ision to use the work of

internal auditors will provide evidenc e to support the S AIs proc edures, f indings, and c onc lusions (10.4 .4).


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As part of the S AIs audit proc ess , a f ollow up of the

implementation and f ulf illment of the S AIs audit rec ommendations should be undertaken (10.6 .1).The internal auditor may f ollow up the implementation and f ulf illment of the S AIs audit rec ommendations, as a means of c ooperation.


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Questions

derby davis coordination and cooperation between sais and internal auditors in the public sector

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