Transcript IMFO Presentation Template

PRESENTATION TITLE: BACK TO BASICS THROUGH INTERNAL AUDIT
IMFO Audit & Risk Indaba 2015
20 – 22April 2015: Olive Convention Centre, Durban
Institute of Municipal Finance Officers & Related Professions
BACKGROUND
Legislative requirements
 Definition of Internal Auditing
Compilation of the Strategic Internal Audit plans
Oversight Committees
Conclusion
Institute of Municipal Finance Officers & Related Professions
LEGISLATIVE REQUIREMENTS AND REPORTING LINES
Municipal Finance Management Act No 56 of 2003
SECTION 165 -
Establishment and roles of Internal audit Activity
SECTION 166 -
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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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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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
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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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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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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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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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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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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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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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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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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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
Controls
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-Implementation of properInstitute
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evaluates if the controls,
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
Governance
The Internal audit function assists Council
-Appropriate risk management activities
and Management in achieving goals of the
including IT & Fraud risks (fraud prevention
municipality by evaluating the process
plans)
through which:
- Ensure that there is an adequately resourced
and functioning internal audit unit
-goals and values are established and
- Audit committee promotes accountability
communicated.
and service delivery through evaluating and
monitoring responses to risks
-the accomplishment of goals is monitored.
-accountability is ensured and corporate values
-Ensure that the audit committee promotes
are preserved.
accountability and service delivery through
evaluating and monitoring responses to risks
and providing oversight over the effectiveness
of the internal control environment
including
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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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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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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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Thank You!
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