DEVELOPMENT OF INTERNAL AUDIT IN UKRAINE CHU PIFC State Financial Inspection of Ukraine Anna Krivchenkova
Internal Audit Legal Framework • Art. 26 of the Ukraine Budget Code: Internal Audit means activities of an internal audit unit in a budget institution aimed at improvement of management system and prevention of illegal, inefficient and ineffective use of budget means, mistakes or other defects in activities of a budget institution and institutions subordinate to it, as well as at improvement of internal control. Fundamental principles of internal control and internal audit, as well as the procedures for development of internal audit units shall be determined by the Cabinet of Ministers of Ukraine. • Ukraine PIFC Development Concept and its Action Plan (Government Decree no. 158-р of 24.05.2005 and no. 456-р of 16.11.2005) • Ukraine Government Decree no. 1001 of 29 September 2011 “Some issues connected with development of internal audit structural units as well as procedures for internal audit in ministries and other central executive authorities, their territorial organizations and budget institutions within the scope of ministries and other central public administration authorities”
Ukraine Government Decree no. 1001 of 29 September 2011 “Some issues connected with development of internal audit structural units as well as procedures for internal audit in ministries and other central executive authorities, their territorial organizations and budget institutions within the scope of ministries and other central public administration authorities” • Procedures for development of internal audit structural units and for conducting audits • Organizational and functional independence of internal audit structural units • Prevention of illegal interference of third parties into planning, conduct and reporting on internal audit • Recommendation to local public authorities to build internal audit structural units by 1 January 2012.
PROCEDURES FOR DEVELOPMENT OF INTERNAL AUDIT UNITS: • Internal audit focuses on activities of central public administration authorities, their territorial organizations and budget institutions either in their entirety or on some individual matters (separate stages) and measures undertaken by their leaders in order to ensure effective operation of the internal control system (observance of principles of legitimacy and effective use of budget resources, performance in conformity with set targets, achievement of objectives, plans and observance of requirements to activities of a central public authority, its territorial units and budget institutions, as well as enterprises, institutions and organizations within the scope of ministries and other central public administration authorities) • GOALS AND FUNCTIONS • SCHEDULE FOR INTERNAL AUDIT • SOME CRITERIA FOR THE NUMBER OF INTERNAL AUDIT STAFF • REQUIREMENTS TO THE LEADER OF THE UNIT AND INTERNAL AUDITORS • RIGHTS • REPORTING
Internal audit units within ministries and other public administration authorities of Ukraine: Built in 66 organizations (87%), with the total number of internal auditors reaching about 1,500 persons. Reasons why these have not yet been set up in the remaining organizations (10): (1) some organizational deficiencies in the process of setting up new units (2) Insufficient staffing Practical activities have started : • Plans for internal audits have been compiled and discussed – 50 organizations (75%),of which: • Performance audits (5%) • Financial audits (60%) • Compliance audits (25%) • Complex audits (10%)
Guidelines for internal audit STANDARDS of internal audit Approved through Order no. 1247 of 04.10.2011 of the Ukraine Ministry of Finance (registered with the Ukraine Ministry of Justice no. 1219/19957 of 20 October 2011) CODE OF ETHICSfor internal auditors Approved through Order no. 1217 of 29.09.2011 of the Ukraine Ministry of Finance (registered with the Ukraine Ministry of Justice no. 1195/19933 of 17 October 2011)
Internal Audit Standards: • Guidelines for internal audit • Rules of professional operation • Uniform approach to organization and conduct of internal audit • Preparation of audit reports, conclusions and recommendations • Quality assessment of internal audit
CODE OF ETHICS for internal auditors: • Formulated as a set of principles, a system of moral and professional values and rules of conduct for the internal audit staff or officials in charge of internal audit, and who voluntarily commit to observe these values and rules in their professional activities • Moral and ethic principles of professional activities: integrity, independence and objectivity, confidentiality, professional competence; • Managers of internal audit units are responsible for the control and supervision of how the Code’s requirements are observed; • Counteraction to gaining illicit profits and gifts (donations)
Support to “internal control and internal audit in public sector in Ukraine” • In order to support practical implementation of this new type of activity (internal audit function), as part of cooperation between State Financial Inspection of Ukraine and Ministry of Finance of the Kingdom of the Netherlands, a training on internal control and internal audit was organized in November-December 2011 for 100 internal auditors; • In April 2012, a training was held on introduction of internal audit in public sector, which gathered 165 trainees. The training was organized in form of discussions and clarifications on most problematic issues and involved international experts on internal audit, representatives of the State Financial Inspection of Ukraine and the Audit Chamber; • In 2011-2012, a number of pilot projects have been launched in order to build a system of internal control in the Treasury (central level of executive authorities) and Kiev Oblast public administration (local public administration)
Training of internal auditors – bimonthly cycle of trainings • attendance by over 100people, prospective internal auditors out of 65 public administration authorities; • lectures and practical modules; lectures (80hours): – internal control – 40hours - internal audit – 40hours practical module (160hours): • internal control – 40hours • internal audit – 80 hours • internal control + internal audit – 40 hours • Group trainings (25 participants in each)
Training of internal auditors – bimonthly cycle of trainings: • internal control: • LECTURES • PIFC system: • European PIFC models, • PIFC system in Ukraine, • international standards of IC and organizational and legal aspects of IC in public administration authorities, • budgetary process in Ukraine and its participants • PRACTICAL MODULE • Basic elements, internal conditions • Formulation of goals • Description of processes • Identification and assessment of risks • How to deal with risks, risk management • Mechanisms of control/control procedures • Organization of information and communication exchange • Monitoring of IC system and results of implementation of control procedures
Training of internal auditors – bimonthly cycle of trainings: • internal audit: • LECTURES • internal audit in PIFC system: • international and national standards of internal audit, • objectives, functions, qualification and ethics of internal auditor • European approaches and requirements of laws and procedures of Ukraine to organization and conduct of internal audits • fundamentals of effective presentation of audit results to managers of institutions PRACTICAL MODULE • Types of audit (performance, financial, compliance) • General strategy of IA unit activity • Main stages of audit • Audit reporting, audit conclusions and recommendations • Control procedures and follow-up of recommendations • Presentation of audit report • Communication. Ways to settle a conflict of interests DISCUSSIONS, PRESENTATIONS OF REPORTS, COMMENTS FROM EXPERTS, CORRECTIONS
Internal audit quality improvement and assessment • Internal assessment: • Internal audit quality improvement program, which is signed by the manager of the IA unit and approved by the manager of the institution : conducting regular internal assessments and following up external quality assessments of internal audit. The manager of the IA unit shall ensure implementation of the internal audit quality improvement program • monitoring of internal audit activities, run by the manager of the IA unit, • regular evaluation of IA unit activities, run by the internal audit staff by self-evaluation, or by other employees of the institutions with practical knowledge in the field of internal audit
Internal audit quality improvement and assessment • External assessment: • is conducted as a survey, no more than once a year, by the State Financial Inspection (PIFC CHU), its territorial units according to the requirements defined in the Decree (Order) no. 1001. • Purpose of quality assessment: • planning, • organization and conduct of internal audit, • follow up of recommendations on audit results, • observance of requirements of internal audit standards and other relevant laws and procedures by managers. • Upon results of internal audit quality assessment, the State Financial Inspection provides recommendations on improvement of deficiencies to the manager of the central public administration authority.
Short-term objectives: • Continue trainings for internal auditors of ministries and other central public administration authorities; for internal auditors of local public administration authorities (regional level) • Organize pilot projects at central and regional levels • Develop methodological recommendations on organization of internal control at central and regional level • Develop methodology – Guidelines on external reporting from internal audit units to the CHU (PIFC Administration) • Develop methodology (practical textbook) on quality assessment (internal and external) of internal audit • Develop a survey on testing and assessment of internal control system by internal auditors