1. Institute of Municipal Finance Officers & Related Professions
PRESENTATION TITLE: BACK TO BASICS THROUGH INTERNAL AUDIT
IMFO Audit & Risk Indaba 2015
20 – 22April 2015: Olive Convention Centre, Durban
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2. Institute of Municipal Finance Officers & Related Professions
BACKGROUND
Legislative requirements
Definition of Internal Auditing
Compilation of the Strategic Internal Audit plans
Oversight Committees
Conclusion
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3. Institute of Municipal Finance Officers & Related Professions
LEGISLATIVE REQUIREMENTS AND REPORTING LINES
Municipal Finance Management Act No 56 of 2003
SECTION Establishment and roles of Internal audit Activity
SECTION Establishment and roles of the Audit Committees
Internal audit should report functionally to the Audit Committee and administratively to the Accounting Officer.
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4. Institute of Municipal Finance Officers & Related Professions
Definition of Internal Auditing
Internal Auditing is:
An independent, objective assurance and consulting
activity designed to add value and improve the
organisation’s operations.
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5. Institute of Municipal Finance Officers & Related Professions
HOW DOES INTERNAL AUDIT ADD VALUE TO SERVICE DELIVERY WITHIN THE MUNICIPALITY
Council and management have certain service delivery objectives
Processes and projects are put in place in order to achieve these objectives
Internal Audit provides independent assurance regarding risk management, governance and control activities that management has put in place to ensure that these processes/projects achieve their objectives, are functioning effectively and efficiently
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6. Institute of Municipal Finance Officers & Related Professions
Definition of Internal Auditing
Assurance and consulting:
Assurance assignments are appropriate when: For a significant risk there is a high reliance on controls and the residual risk is therefore mitigated to an acceptable level.
Advisory assignments are appropriate when: The inherent risk has not been adequately addressed and the residual risk therefore remains outside the tolerable risk appetite. The actual approach will be to perform a combined assurance/advisory assignment.
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7. Institute of Municipal Finance Officers & Related Professions
Internal Auditing Definition (cont..)
Internal Auditing is:
It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve
the effectiveness of Risk Management, Controls, and Governance Processes
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8. Institute of Municipal Finance Officers & Related Professions
INDEPENDENCE
According to the Standards for the Professional Practice of Internal auditing ,internal auditors are independent when they can carry out their work freely and objectively.
Independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of engagements. Independence is achieved through organisational status and objectivity.
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9. Institute of Municipal Finance Officers & Related Professions
INDEPENDENCE (cont..)
The internal audit function is authorised to:
Have unrestricted access to all functions, records, property and personnel.
Have full access to the audit committee
Allocate resources, determine scopes of work, and apply the techniques required to accomplish audit objectives.
Obtain the necessary assistance of personnel in the Municipality where they perform audits, as well as other specialised services from within or outside the municipality.
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10. Institute of Municipal Finance Officers & Related Professions
INDEPENDENCE (cont..)
The internal audit function is not authorised to:
Perform any operational duties for the Municipality.
Initiate or approve accounting transactions external to the internal auditing Activity/function.
Direct the activities of any organisation employee not employed by the internal auditing activity, except to the extent that such employees have been appropriately assigned to auditing teams or to otherwise assist the internal auditors in carrying out investigations.
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11. Institute of Municipal Finance Officers & Related Professions
WHAT INFORMS THE STRATEGIC INTERNAL AUDIT PLAN
The strategic role of internal audit is emphasized when drafting the strategic three year rolling and one year operational audit plan. Certain critical success factors (key areas )should be focused on:
Internal audit plan should be in line with the Municipal strategic objectives.(IDP)
Strategic plans including operational plans should be Risk- based
Proper matching of skill with available resources
(The annual plan in terms of priority ranking (based on the risk
assessment) of identified audit areas and the expertise and
resources available to internal audit)
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12. Institute of Municipal Finance Officers & Related Professions
OTHER INPUTS TO THE ANNUAL INTERNAL AUDIT PLAN
Management requests and Audit Committee inputs
Legislative requirements (the MFMA and the Systems Act requires that certain areas have to be reviewed by Internal Audit on a yearly basis)
Internal Audit Judgement
Previous Internal and external audit reports
Follow-up Internal Audit issues
Follow-up AG issues
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13. Institute of Municipal Finance Officers & Related Professions
OTHER INPUTS TO THE ANNUAL INTERNAL AUDIT PLAN (cont..)
AUDITOR GENERAL SOUTH AFRICA EMPHASIS AREAS/AREAS OF CONCERN:
Supply Chain Management;
Quality of Annual Financial Statements;
Reporting on pre determined objectives;
IT Governance; and
Human Resource Management
Non compliance to laws and regulations
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14. Institute of Municipal Finance Officers & Related Professions
OTHER INPUTS TO THE ANNUAL INTERNAL AUDIT PLAN
DASHBOARD REPORTING
In addition to the above the AGSA introduced the dashboard reporting these are drivers of internal control when assessing Financial, Performance and Compliance management processes to achieve clean administration.
Internal Auditors should align (reference)their annual internal plans to these key Control Checklist to continuously evaluate monitor internal controls and make appropriate recommendations.
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15. Institute of Municipal Finance Officers & Related Professions
OTHER INPUTS TO THE ANNUAL INTERNAL AUDIT PLAN
AGSA areas to assess controls around Financial, Performance and Compliance management
Internal audit focus areas to assess Internal Controls
Leardership
-Effective leadership based on a culture of honesty, ethical business practices and good governance
-Exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls
-Implement effective HR management
-Develop and monitor the implementation of action plans to address internal control deficiencies
Risk Management
- evaluate and assess significant
organizational risks including IT & Fraud risks (fraud prevention plan)
-Establishment of the Risk management units
-Establishment of the Risk Management Committees
Financial and Performance management
-Implementation of proper record keeping
-Preparation of regular, accurate and complete financial and performance reports.
-Design and implement formal controls over IT systems
Controls
Internal audit evaluates if the controls,
which management relies on to manage
the risks down to acceptable levels, are
appropriate and functioning as intended
(i.e. are they effective yet efficient) and
develop recommendations for
enhancement or improvement.
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16. Institute of Municipal Finance Officers & Related Professions
OTHER INPUTS TO THE ANNUAL INTERNAL AUDIT PLAN
AGSA areas to assess controls around Financial, Performance and Compliance management
Internal audit focus areas to assess Internal Controls
Governance
Appropriate risk management activities including IT & Fraud risks (fraud prevention plans)
Ensure that there is an adequately resourced and functioning internal audit unit
Audit committee promotes accountability and service delivery through evaluating and monitoring responses to risks
Ensure that the audit committee promotes accountability and service delivery through evaluating and monitoring responses to risks and providing oversight over the effectiveness of the internal control environment including financial and performance reporting and compliance with laws and regulations
The Internal audit function assists Council
and Management in achieving goals of the
municipality by evaluating the process
through which:
-goals and values are established and communicated.
-the accomplishment of goals is monitored.
-accountability is ensured and corporate values are preserved.
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17. Institute of Municipal Finance Officers & Related Professions
CHARACTERISTICS OF AN EFFECTIVE AUDIT COMMITTEE
Independence and competency of appointed members.
Adequate training and resources.
Frequency of meetings and special meetings.
Evaluation of risk assessment, control systems, internal audit, external audit and management decisions.
Unrestricted access to council, internal and external audit.
Continual evaluation of the effectiveness of the Audit Committee by council.
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18. Institute of Municipal Finance Officers & Related Professions
BENEFITS OF AN EEFECTIVE AUDIT COMMITTEE
Improved communication channel between councillors, senior management, internal and external auditors
Users of the municipality’s financial information are reassured about the credibility and objectivity of financial statements and standards of corporate governance.
It strengthens the independence of the internal and external audit functions.
It promotes improved effectiveness, efficiency and economy of operations.
It promotes better financial management.
It helps councillors and management fulfil their legal responsibilities.
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19. Institute of Municipal Finance Officers & Related Professions
CONCLUSION
It is important for the following to be in place and operating effectively if we want to achieve clean administration:
Internal Audit Units and Audit Committees
Risk units and Risk Management Committees
Audit Steering Committees
MPAC ‘S
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20. Institute of Municipal Finance Officers & Related Professions
Thank You!
Institute of Municipal Finance Officers & Related Professions