Challenges to Establishing an Effective Organisational Framework for Effective Internal Auditing

1. Challenges to Establishing an Effective Organisational Framework for Effective Internal Auditing By Ato Ghartey

2. OUTLINE • What is a framework? • Why does it exist/objectives? • The Framework: Illustration from Ghana • What does it look like?Who should design it?Where should it be located?ChallengesEvaluation criteria and methodologySuccess criteria: Outcomes and ImpactsTeasing questions • Conclusion • What does it look like? • Who should design it? • Where should it be located? • Challenges • Evaluation criteria and methodology • Success criteria: Outcomes and Impacts • Teasing questions

3. OBJECTIVES OF THE INTERNAL AUDIT Organisational framework

4. Why Does It Exist / Objectives? Control environment with integrity, accountability and transparency. Strong culture of internal control, risk management, internal and external auditing Clear definition of powers and responsibilities Facilitating coherent system Transparency, public confidence for rational allocation of resources. Add value and improve operations Priority setting, planning and decision making Accurate,reliable and timely reporting

5. THE FRAMEWORK Sector Ministry Attorney General office Cabinet Parliament

6. Background • Public Financial Management Reform • Programme (PUFMARP). • Transfer of budgetary authority and • expenditure control to MDAs and MMDAs. • Formal legal recognition of internal audit

7. THE EXISTING LOCATION (CAGD), STRUCTURE AND FUNCTIONS Controller & Accountant-General Head of Audit & Investigations Division (Director) Audit Investigations Public Accounts MDAs Payroll Audit Task Force Pension Note: Questionable mandate, lack of control overide, duplication of functions.

8. Redesign and Relocation Using this approach Understanding and appreciation of How the whole internal audit system works.How to identify the component parts, e.g., MDAs, MMDAsHow each of the components worksHow the parts fit together as a whole Functions and processes are brought togetherSystem implementation is done in a coherent mannerEach party within the organisation gets to know his/her role and how the role links to or affects other parts of the organisation.

9. National Government Decentralized Government Levels Centralized Government Levels Key Institutions

10. PROPOSED STRUCTURE OF THE CENTRAL INTERNAL AUDIT AGENCY (CIAA) OFFICE OF THE PRESIDENT OR MINISTRY OF FINANCE CENTRAL INTERNAL AUDIT BOARD DIRECTOR GENERAL DEPUTY DIRECTOR GENERAL (DDG) Technical , Field Operations & Research - MDAs DEPUTY DIRECTOR GENERAL (DDG) Technical , Field Operations & Research - MMDAs DEPUTY DIRECTOR GENERAL (DDG) Administration & Human Resource MDA MDA* MDA RIAU RAIU RAIU ABBREVIATIONS DDG Deputy Director General MDA* Ministries, Department and Agency MMDA Metropolitan, Municipal and District Assembly RIAU Regional Internal Audit Unit * Also included in the MDA category are the Armed Forces, Commission on Human Right and Administrative Justice, National Media Commission, Serious Fraud Office, electoral commission and other similar institutions. MMDA MMDA MMDA MMDA

11. Skills mix Staffing and capacity building requirements Skills needsSkills mixTraining plan and sustainability Training plan and sustainability Skills needs

12. Transition Plan • Implementation committee • Legal backing • What to do with existing staff, etc.

13. Resource and Operational RequirementsCosting of operational and logistical inputs

14. LEGAL FRAMEWORKCentral Internal Audit Bill 2002

15. Legislative Instrument • Manual, e.g. Eastern and SouthernAfrica • IIA Etc. see illustration Operational Framework

16. Operational Framework an Illustration

17. The Framework Professional Practices Framework Code of Ethics Attribute Standards -Independance and Objectivity -Proficiency & Due Professional Care -Quality Assurance & Compliance Consulting Services Implementation Standards Assurance Services Implementation Standards Performance Standards Internal Auditing Definition Internal Auditing Definition -Managing the Internal Auditing Activity -Nature of Work -Engagement Planning -Engagement Performance -ommunicating Results -Monitoring Progress Guidance -Practice Advisories Guidance -Development & Practice Aids

19. C Normal change management expectations H A L Specific challenges L E N G Environmental challenges E S

20. Normal change management expectations Note • Normal Change Management Expectations • Note: Change implies the unknown, uncertainty, risk and stress. The status quo represents stability, consistency and security. People resist change for good reasons which include: • Communication: Not convinced about the need for change. Lack of awareness, consensus building and participation. • Security: loss of current job status and known work and expertise. • Uncertain benefits. • Fear of failure. • Low tolerance for change. • Change implies the unknown, uncertainty, risk and stress. The status quo represents stability, consistency and security. People resist change for good reasons which include: • Communication: Not convinced about the need for change. Lack of awareness, consensus building and participation. • Security: loss of current job status and known work and expertise. • Uncertain benefits. • Fear of failure. • Low tolerance for change.

21. Specific Challenges Timing and funding, e.g., estimated start, November 2001. Implementation of priority issues, i.e., implementation committee, enactment of law, appointment of D-G and other key staff July 2002. Ownership of internal audit staff Location: Office of President v MOF

22. Rationale of the framework and related issues Scope and targeting of policy implementation activities Environmental Challenges Legitimacy of framework Issues and constraints related to implementation (See below)

23. Implementation issues include: • Policy rationale – need for the framework and assurance services • Policy implementation and building capacity – including reporting, HR, strategy, and internal audit committees • Ignorance, Compliance, Enforcement • Professionalism and ethics • Governance and poverty reduction dimensions • Information Technology Issues in Internal Auditing • Values and Accountability • Mobilizing Support and Structuring Credibility for Public Sector Internal Auditing/Building Confidence and Trust • Building Partnerships and Coalitions for Effective Financial Accountability (includes outsourcing) • Staff recruitment and retention • Appropriate classification and salary levels

24. Evaluation Issues • Evaluation Methodology • Outcome, Impact and Success Criteria • Teasing Questions

25. Evaluation Methodology • Feedback • Interviews • Survey • Case studies • Gap analysis • Review of relevant documents • Benchmarking

26. Outcome, Impact and Success Criteria • Results of the new IA policy activities • improved programme delivery, alternatives, and unintended effects • improved awareness, compliance and enforcement • improved governance

27. Teasing Questions Teasing Questions: • To what extent have departmental heads and accounting officers bought into the revised IA policy and assurance services? • Is there an active IA committee in each department and agency providing input to departmental priorities, planning, and decision-making? • Are management corrective action plans followed-up and implemented? • Has a monitoring system been set up and implemented? • Is there a continuing need for change in the IA function?

28. Teasing Questions contd. • To what extent have departments and agencies established an effective assurance capability? • To what extent will the revised IA policy contribute to: • more effective audit reporting? • supporting the management in setting priorities, planning and decision- making? • fostering a continuous management improvement system? • improving confidence in the IA function? • providing greater transparency in program delivery? • ensuring accountability of departments and government to Parliament and to the citizenry?

29. Teasing Questions contd. • To what extent have your capacity building initiatives been successful in: • providing advice to the political leadership, departmental heads, the general public, and IA practitioners? • developing the necessary technical capacity and expertise for the country? • Improving awareness, compliance and enforcement?

30. Teasing Questions contd. • How effective will the IA policy be in contributing to improved program delivery of departments? • How effective will the IA policy be in improved governance (including anti corruption) and poverty reduction? • Are there better ways of delivering the IA function within the federal, state and local governments? • What, if any unintended effects (positive or negative) will result in the new IA policy and framework • Is there an effective monitoring system in place for the IA function?

31. Conclusion “We wont solve new problems with old ways of doing things.” Albert Einstein Keep abreast with new and emerging ways trends and ways of doing things. That way we will be well equipped to solve new problems with corresponding new approaches. Change of attitude, skills set and mindset. Change views on internal audit and look for more innovative and effective ways of using the resources associated with it before the full benefits associated with it can be realized.

32. The End THANKS