1. Approaches and challenges in implementing the public internal audit in Romania Maria POPESCU, Director CHUPIA Ministry of Public Finance Bucharest 2014

2. Romanian characteristics  Public internal audit represents an activity regulated through a distinctive law  Implementing a function of public internal audit it is mandatory at the level of every public entity  At the level of the institutions that are subordinated to a higher public entity, the decision of organizing internal audit, it is conditioned by the agreement/approval of the head of the higher hierarchic entity  The public internal audit compartments should include at least two full-time positions for internal auditors  Not setting up the organizational and functional framework regarding public internal audit activity it is subject to a fine, according to the Law

3. Stages in the evolution of public internal audit (I) 1999-2002: Introducing the internal audit in the public entities  Regulating the internal audit function  Defining the area of applicability for internal audit  Existence of a mandate for performing the audit mission  Adopting a risk based approach for planning the internal audit activity

4. Stages in the evolution of public internal audit (II) 2003-2011: Implementing the internal audit function in public entities (result oriented approach)  Coherent and exhaustive legal base  Clear delimitation for the role and goal of public internal audit  Defining the types of internal audit engagements  Ensuring the organizational and functional independence  Improving the training of internal auditors

5. Stages in the evolution of public internal audit (III) 2012 - present: Consolidation of internal audit function (process oriented approach)  Increasing the implementation degree of public internal audit, through: Ensuring internal audit function through cooperation in local public entities Exercising the public internal function by CHUPIA for the public entities with a budget under 5 mil lei (aprox. 1,1 MEURO  Professionalization of the internal auditors body  Strengthening the functional independence of the internal auditors

6. Public internal audit organization - Bodies Committee for Public Internal Audit CHUPIA National level Public entity level Committee for Internal Audit Public internal audit compartment Main spending agencies Secondary and tertiary spending agencies Public internal audit compartment

7. Public internal audit organization – Forms 2. Compartment organized at the level of the higher hierarchical entity 2. Operational Body of CHUPIA at the public entities having a budget under 5 mil lei 3.MoF Internal audit compartments at the small public entities (budget under 100.000 Euro) Public entities from the central administration Public entities from the local administration Main spending agencies 2. Compartment organized through cooperation system Secondary and tertiary spending agencies 1. Own compartment 1. Own compartment (with the approval of the head of the higher hierarchic entity) 2. Compartment organized at the level of the higher hierarchical entity 3. Compartment organized through cooperation system (with the approval of the head of higher hierarchic entity)

8. Categories of public entities Main spending agenciesPublic Entities subordonated, under the coordination or under the authority Total % Own unit % Cooperation system % Total % Own unit % Cooperation system % Higher hierarchic entity Total % I. Central Administration 98 451358 60 Ministries 100 441458 Other public central institution 98 59766 73 II. Local Administration 22 274154462 58 Judeţe/counties (including Bucharest) 100 - 12-6274 75 Municipalities 98 - 5-6064 66 Bucharest sectors 83 - 13-3548 52 Towns 75 2 77 0,516061 65 Communes 14 30 44 -121456 49 Total public administration 23264912 386258 The Stage of the organization of public internal audit in Romania

9. CHUPIA: diagram CHUPIA Director Strategy and methodology Bureau Service for Operational audit al national level Coordination, evaluation and reporting Bureau Secretariat

10. CHUPIA: relations system Public Internal Audit Committee Certification Committee of internal auditors from public entities and the physical persons Public finance minister CHUPIA Public internal audit compartments Public entities involved in carrying out projects financed through reciprocal programs SEE, Norway and Switzerland Internal audit compartments within the Public Finance Regional Directorates Public financial control authorities and organizations from Romania and other states Subordination hierarchical relations Cooperation relations (advisory role) Functional relations (decisional role in approving certification request) Coordination, methodological guidance, cooperation and control Control relations Cooperation relations

11. Responsibilities of the internal audit bodies (I) FunctionsCHUPIAPublic internal audit compartment Strategic Drafting, implementing and monitoring a IA strategy at the national level Drafting and implementing the IA strategy at the public entity level in correlation with the national strategy and the internal control environment Regulation Issuing the specific legal framework at the national level Drafting specific methodologies Developing the procedural framework through generalizing the best practices Issuing the general framework of cooperation agreement for ensuring public internal audit function Issuing the own methodological framework at the public entity level Developing the own procedural framework Ensuring independence Approving methodological norms for public entities whose managers are top budget authorities Approving nomination of the chief of public internal audit compartment for the public entities whose managers are top budget authorities Approving the specific methodological norms of subordinated public entities Approving nomination of the chief of public internal audit compartment for the subordinated public entities Coordination Coordination of hiring system Coordination of internal audit training system Coordination of national certification process Guiding the local public entities and associative bodies in implementing the cooperation system Coordination of internal auditors training from subordinated public entities

12. Responsibilities of the internal audit bodies (II) Functions CHUPIAPublic internal audit compartment Control External evaluation of the public internal audit activity of public entities, including organizing associative bodies External evaluation of the public internal audit activity at the level of subordinated public entities Evaluation Internal audit engagements relevant at the national level and having implications in many domains Audit engagements: assurance and consultancy Reporting Issuing the reporting system of public internal audit activity at the national level Drafting the annual report regarding internal audit activity in the public entities Drafting the annual report regarding internal audit activity at the public entity level Periodical reports regarding the results of internal audit activity Cooperation Developing cooperation agreements with the university environment for facilitating the training of internal auditors Developing cooperation relation with the institutions and professional bodies in the audit field Developing cooperation relation with institutions and other control bodies in the audit field Audit Authority Conformity, system and operational audit engagements

13. The Committe for Public Internal Audit (I) The Role of the Committee:  Consultative function  It contributes to the improvement of internal audit strategy Committee Members: 11 persons  The President of the Financial Auditors Chamber  University proffesors (2 persons)  Specialists in the field of public internal audit(3 persons)  Experts in public acounting, juridic, IT systems (3 persons)  A representative from the management of the associative structures of public local authorities  Director of CHUPIA

14. The Committee for Public Internal Audit (I) Main Attributions:  it issues an opinion on the strategy in the field of public internal audit and on the legal frame-work elaborated by CHUPIA  it analyzes the importance of the recommendations issued in the audit process that are not followed by the head of the public institution and formulates an opinion on the consequences of not implementing  it endorses the Annual Report on public internal audit activity and present it to the Government  it endorses the plan of audit missions of national interests with multisectorial implications and after the mission, it debates and it endorses the report  it analyses the cooperation agreement between internal audit and external audit

15. Strategic approach in implementing the Internal Audit Standards (I) Public Internal Audit Strategy, legal and procedural framework Coordination and Monitoring Evaluating the observance of the specific legal framework Reporting activity results

16. Strategic approach in implementing the Internal Audit Standards (II) I. Issuing and implementing the specific legal framework At the national level  Law no. 672/2002 regarding public internal audit  Methodological norms for applying the law (Government Decisions: no.1086/2013, no. 1183/2012, no. 1259/2012 and no. 554/2014) At the level of every public entity  Specific methodological norms regarding carrying out the public internal audit activity, approved by CHUPIA or by superior hierarchical entity (in the case of subordinated entities)

17. Strategic approach in implementing the Internal Audit Standards (II) II. Coordination and monitoring of public internal audit activity  Ensuring consultancy in implementing the new provisions of the specific legal framework  Promoting experts meeting for identification the difficulties experienced by the public internal audit compartment  Periodical monitoring of the stage regarding implementation of the legal framework provisions  Managing the permanent files of the public entities/specialized body from entity and databases with auditors  Managing the cooperation agreement for ensuring the internal audit function

18. Strategic approach in implementing the Internal Audit Standards (III) III. Ensuring external evaluation of internal audit activity  evaluators: CHUPIA and the internal audit compartment established at the level of the superior hierarchical entity (in case of subordinated entities)  timing: at least once in 5 years  goal: examination of public internal audit compartments with regard the observance of norms, instructions and internal auditor’s Code of Ethics

19. Strategic approach in implementing the Internal Audit Standards (IV) IV. Reporting the public internal audit activity  Activity recognition: legal responsibility of CHUPIA and public internal audit compartment  Annual structure: minimal mandatory requirements issued by CHUPIA  Timing: „annually” and „periodically” depending on the specific reporting system of the entity  Report beneficiaries: Government, CHUPIA, Court of Accounts and the managers of the public entities

20. Strategic directions for strengthening the internal audit function I. Cooperation for ensuring public internal audit function (started in 2010) II. Public internal audit certification (legal framework adopted and procedural framework undergoing, it will start in the first quarter of 2015) III. Implementing the Internal Audit Committee at the level of the public entities having a budget over 2 billions lei (legal framework adopted and procedural framework undergoing)

21. Cooperation for ensuring audit function – general aspects (I)  Legal base: issuance of a decision of the local council, signing the Cooperation Agreement (general provisions mentioned through Hot ă rârea de guvern no. 1183/2012)  Application: by the territorial administrative bodies (county, municipalities, towns and villages)  Categories of organizing entities: Public utilities associative bodies of the local public administration Local public entities with managers being top level budget authorities  Cooperation criteria: Affiliation to local administration associative bodies Geographical area and the main way of communication grouping; Common area interests.

22. Cooperation for ensuring audit function – present stage (II)  The degree of ensuring public internal audit through cooperation: About 20%, taking as reference the whole number of entities from local administration About 17%, taking as reference the whole number of entities from administration  Number of internal auditors: about 180 auditors (position filled), from which 15% managing positions Represents about 7% from the whole number of the auditors within public administration  Number of local public entities per auditor: An auditor at every 8 associative entities (on average)  Trend in the period 2010-2013 medium increase with 49% of the partnerships number medium increase with 61% of the number of entities being under partnership medium increase with 29% of the number of internal auditors

23. Internal auditors certification – general aspects (I)  Legal base: Specific methodological norms (Government Decision no. 1259/2012) Procedural framework  Bodies responsible of the process: CHUPIA – technical secretariat Certification Committee Universities Persons involved in the process (internal auditors and physical persons, persons which make recommendations)  Certification Committee Consisting of 5 members (Education, National Authority of Competences, Labor, Justice and CHUPIA director-chairman) nominated through public finance minister order  Impacts: Limitations of the activity carried out by the internal auditors Reorientation on other activities within the public entity

24. Internal auditors certification – general aspects (II)  Applicability: Internal auditors from the public entities: 2.448 positions filled at 31 of December 2013 Physical persons: an estimation indicate about 1.100 persons, from which 930 with regard to internal auditor vacant positions  Way of approach: Planned activity: Inputs: applicants files; Process: Technical Secretariat - analyzing file completeness Certification Committee - reviewing files documents and approving request and recommending certificate issuing Outputs: certificates issued by MoF

25. Internal auditors certification – stages in the implementation process (I) I. Obtaining the certification – on the basis on reviewing proves which demonstrate:  Having minimal competence in the following 7 areas: internal audit; risk management, control and governance; management; accountancy; public finance; IT and law (bachelor’s degree or specializations through accredited courses);  Professional probity of the person (professional behavior – ethics component);  Minimal professional experience in at least one of 7 areas of competence

26. Internal auditors certification – stages in the implementation process (II) II. Ensuring annual individual professional training – observance of the following requirements:  Preparation period at least 15 days per auditor;  Training needs of the auditors are identified in the internal evaluation process;  Selection of the training methods in relation with the budget allocated.

27. Internal auditors certification – stages in the implementation process (III) III. Keeping the certification – every 5 years on the basis of proves review which attests:  Reports approved by the chief of the audit compartment regarding the carrying out the continuous professional training programs (specific reports).

28. Implementing the Committee for Internal Audit at the level of the public entities – general aspects (I)  Legal base: Specific methodological norms (Government Decision no. 554/2014) The obligation of establishing a Committee at the public central institution that run budgets over 2 billions lei(aprox 450 MEURO)  The role of the Committee: consultative in defining the strategy of internal audit Improving the audit activity within the public institution  Members of the Committee : 5-7 persons Inside institution: specialists in public activities (2-3 persons) Outside institution: auditors (2-3 persons) The Chief of the public internal unit from the institution

29. Implementing the Committee for Internal Audit at the level of the public entities – general aspects (II)  Rules for selecting internal auditors: Experience in audit minim 5 years; Selecting from the public institutions that have already established an audit committee.  Rules for selecting the specialists work in the field of financial-accounting, juridical, human resourses, IT systems or in the specific field of activity of the institution; Experience in the activity of minimum 5 years Occupy an execution post

30. Implementing the Committee for Internal Audit at the level of the public entities – general aspects (III)  Main Atributions: It endorses the plan of public intern audit It issues an opinion on the recommendations formulated by the auditors, including on those that have not been accepted by the head of the institution It endorses the Annual Report on the public internal audit activity It endorses the cooperation agreements with other institutions for exercising internal audit activities It examinates the petitions/complains regarding the overriding of the Ethic Code of the auditors and proposes measures

31. Problems identified in public internal audit activity  The appreciable number of entities ensuring public internal audit function through audit compartments having a single internal auditor position  The manager position for internal audit compartment do not exist or is ensured by an execution person  Low degree of public internal audit organization at the level of local public administration  Lack of collective competences necessary for auditing the entire mandatory auditable scope at the level of audit compartments

32. Difficulties encountered in implementing the internal audit function  Great number of territorial administrative bodies which should to ensure the implementation of the internal audit function; also great geographical dispersion  Internal audit function is seen as a general function  Consecutive reorganization in the architecture of the entities subordinated to the ministries  Budgetary constraints  Paying system unattractive

33. Challenges in implementing the internal audit function  Implementation of the Internal Audit Committee  Establishing regional bodies of CHUPIA  Endeavour for implementing the management system of quality within CHUPIA, including at the regional bodies  Increasing the degree of automation of internal audit activities  Rethinking of the actual system regarding the organization of public internal audit: Increasing budgetary thresholds used in setting the responsible with internal audit organization Promoting a strategy to attract in partnership the small public entities from local public administration  Implementing an e-learning system of professional training for internal auditors

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