1. Internal Control system
A unique framework to transform our mind set
MOF, Georgia, Internal Audit Department, November, 2018
Shalva Kiknadze

2. Main topics we will cover
Internal Control System – A process, measure or outcome;
Implementing strategy for Financial Management and Control System in Georgia™ - Managerial accountability, the first cornerstone of ICS in Georgian current administrative practice;
How ICS saves disoriented managers and auditors;
Main challenges we face.

3. Internal control – multiple meanings
A system or process - the entirety of an organization’s internal control system, i.e., an organization’s internal control system;
An activity or measure - the actual measure to treat risks and to effectuate internal control, i.e., individual controls;
A state or outcome - an organization is “in control,” when it has achieved its internal control objectives.

4. Internal control – a system or process
Internal control is an integrated part of an organization’s governance system and risk management, which is understood, effected, and actively monitored by the organization’s governing body, management, and other personnel, to take advantage of opportunities and to counter the threats, in line with risk management strategy and policies on internal control set by the governing body to achieve an organization’s objectives through, among other things:
executing effective and efficient strategic and operational processes;
providing useful information to internal and external users for timely and informed decision making;
ensuring conformance with applicable laws and regulations, as well as with the organization’s own policies, procedures, and guidelines;
safeguarding the organization’s resources against loss, fraud, misuse, and damage; and
safeguarding the availability, confidentiality, and integrity of the organization’s information systems, including IT.
Source: Global Survey on Risk Management and Internal Control, IFAC (2011)

5. Internal control – an activity or measure
Activities performed to treat risks and effectuate internal control.
Examples of actual control activities include managerial controls, such as executing the „Plan-Do-Check-Act Cycle,“ or transaction controls, such as verifications, reconciliations, authorizations, physical controls, and supervisory controls that oversee transaction controls.
Source: Global Survey on Risk Management and Internal Control, IFAC (2011)

6. How ICS can be build-in not build-up in public organisation’s ordinary fiscal cycle
Budget Cycle within the SU
Plan M C Do
Check
Act
Plan M C ?
Management cycle
Control cycle
State Budget cycle
Act Do M C M C
Check M C
Budget organisations
Spending units (SUs) -Ministries

7. Internal control – A state or outcome
An organization is „in control,“ when it has achieved its desired internal control objectives by treating the risks an organization faces in accordance with its risk management strategy and policies on internal control, while achieving the organization’s objectives.
Source: Global Survey on Risk Management and Internal Control, IFAC (2011)

8. Risks identified and assessed
Internal Control ≡ always risk oriented and dynamic system
General system logic
System sponsors and Owners
Assurance providers
Assurance reports
Risks identified and assessed
Operational reports and information/metrics on the system performance M C
Monitoring
Objectives of internal Controls
Operational Processes
Control procedures
Policies or system’s objectives and plans
Assurance reports
System managers

9. Some attributes of Internal control concept creating obstacles in Georgian public sector organisations
Designed to serve mainly broad social and public best interests not to interests of particular major groups;
Is relatively new and  ambiguous concept than another tasks of management and governance (e.g. Controlling, strategic planning, management accounting, inspection, forecasting, budgeting, quality, accounting, Auditing);
Needs clear defined and strong ownership and champions to establish, maintain and keep as an influential mechanism;

10. Main Precondition to establish control processes in the Georgian public organisation
They should be designed and maintained to treat/respond risks identified and therefore to enhance the chance accomplishing business objectives. Otherwise they are blind, dysfunctional, disoriented activities and center of non-recoverable costs. Thus we need well articulated objectives, strategies, annual plans.
Establishing and maintaining Internal Control are primary responsibility for Senior management which can’t be separated from theirs managerial accountability tasks. Due this treat we started to establish internal control system with defining clear managerial accountability arrangements based on budget programs.

11. Internal control integrated in managerial accountability
Managers at all hierarchical levels of an institution shall be accountable to their superior managers for their activities and for the accomplishment of the goals and objectives of the institution by lawful, economical, effective and efficient management of funds.
Source: Law of Georgia on Public Internal Financial Control, article 7.

12. What can be concluded when managers did not establish and maintain sound internal control systems
They did not know how to manage this task;
They think that there is already some adequate system of internal controls in place;
They consider the task as not important one;
They think that the task is outside theirs responsibility, and in the most worst case,
It does not matter what outputs or outcomes they get from the processes or activities they carry out.

13. Why it is hard for senior managers to deal with internal controls within a organization
Not segregated political and administrative level within the organisation;
Very weak political and supervisory pressure for poor performance from legislative body;
Not articulated objectives and strategies;
Decentralization and delegation is a taboo;
Poor developed corporate sector;

14. Finance and Economic Departement
Integration new FMC rules into our public administration system – An overview
Annual statement on organisational Financial managementr and control system
Minister
Deputy Minister
FMC Coordinator
Deputy Minister Program manager
Deputy Minister Program manager
Deputy Minister Program manager
Deputy Minister Program manager
Deputy Minister Program manager
SLA, Performance standards
SLA, Performance standards
SLA, Performance standards
SLA, Performance standards
Finance and Economic Departement
Budget Executor
Progran 2301
Regularreports,
EF&FIN
Regularreports,
EF&FIN
Regularreports,
EF&FIN
Regularreports,
EF&FIN
Budget Executor
Progran 2302
Budget Executor
Progran 2303
Budget Executor
Progran 2303
Budget Executor
Progran 2303
SLA – Agreement on the terms for providing public services
EF & FIN - Reports on the financial, non-financial perfomance and FMC issues

15. What internal auditors can do (and add values) when there aren’t clear articulated business objectives, priorities and strategies
Help managers to set some suitable one;
Consider the using internal control objectives categorized into thee main groups (Compliance, reporting, process efficiency and effectiveness);
seek another alternatives.

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