World Bank InstituteWorld Bank InstituteRegional Workshop for Anglophone Africa Regional Workshop for Anglophone Africa on Auditing and Financial Accountabilityon Auditing and Financial Accountability

Addis AbabaAddis Ababa

KEY ISSUES INKEY ISSUES INCREATING AN EFFECTIVE INTERNAL CREATING AN EFFECTIVE INTERNAL

AUDIT FUNCTIONAUDIT FUNCTION

Case study using the National Department of Case study using the National Department of Health in South AfricaHealth in South Africa

Gloria SpelmanGloria SpelmanHead: Shared Internal Audit Services (SIAS)Head: Shared Internal Audit Services (SIAS)Eastern Cape Provincial AdministrationEastern Cape Provincial AdministrationSouth AfricaSouth AfricaE-mail: spelmg@otpoecd.ecape.gov.zaE-mail: spelmg@otpoecd.ecape.gov.za

AgendaAgenda

• Background to the Department of HealthBackground to the Department of Health• Setting goals and/or prioritiesSetting goals and/or priorities• Marketing the IA functionMarketing the IA function• Development of chartersDevelopment of charters• Setting up Audit CommitteeSetting up Audit Committee• Development of 3 year rolling internal audit planDevelopment of 3 year rolling internal audit plan• ReportingReporting• Relationships with external auditorsRelationships with external auditors• On-going challengesOn-going challenges• ConclusionConclusion

BackgroundBackground

• Internal audit mandateInternal audit mandate• King Report on corporate governanceKing Report on corporate governance• PFMA & Regulations mandate the use of standardsPFMA & Regulations mandate the use of standards• State of the Department before having an internal State of the Department before having an internal

audit functionaudit function• Non- existent internal auditNon- existent internal audit• Lack of awareness of prescriptsLack of awareness of prescripts• Lack of understanding of the role of IALack of understanding of the role of IA• Lack of commitment to achieving business plan Lack of commitment to achieving business plan

objectives (lack of monitoring tool to ensure objectives (lack of monitoring tool to ensure achievement of objectives by Directoratesachievement of objectives by Directorates

• High risk of giving the Accounting Officer High risk of giving the Accounting Officer something on paper which has actually not been something on paper which has actually not been achieved and giving wrong adviceachieved and giving wrong advice

• No understanding of risk conceptNo understanding of risk concept

Setting goals and/or Setting goals and/or prioritiespriorities• Creating an enabling environmentCreating an enabling environment (why start here?) (why start here?)

- Identification and communication with role players.- Identification and communication with role players.- Setting vision and mission- Setting vision and mission- Ensuring independence- Ensuring independence- Relationship with the Accounting Officer- Relationship with the Accounting Officer

• Establishing a solid foundation for the futureEstablishing a solid foundation for the future- Training and developing staff (relationship with the - Training and developing staff (relationship with the IIA)IIA)- Staff recruitment and and retention plan- Staff recruitment and and retention plan- Motivating staff to develop passion for the IA function- Motivating staff to develop passion for the IA function- Setting up an IA reference centre (library)- Setting up an IA reference centre (library)- Getting buy-in and support from management and - Getting buy-in and support from management and staff (how)staff (how)- Benchmarking- Benchmarking- Integrity assessments- Integrity assessments

Marketing the IA functionMarketing the IA function

• Interacting with managementInteracting with management– Organizing management workshops, breakfast Organizing management workshops, breakfast

seminars etc.seminars etc.– Informal discussions with client staff members.Informal discussions with client staff members.

• Need to interact with organized laborNeed to interact with organized labor– Their influence and impact cannot be ignored.Their influence and impact cannot be ignored.

• Need to advertiseNeed to advertise– Putting IIA posters in outside the IA officesPutting IIA posters in outside the IA offices

• What happened?What happened?

Impact of Marketing IA…Impact of Marketing IA…

• Management support and buy-in Management support and buy-in

• Staff understanding and buy-in on IA Staff understanding and buy-in on IA functionfunction

• Pressure on IA to meet client Pressure on IA to meet client expectationsexpectations

• Greater awareness and an enthusiasm Greater awareness and an enthusiasm to comply with crucial government to comply with crucial government prescripts i.e. laws, regulations, etc prescripts i.e. laws, regulations, etc

Development of Audit Development of Audit ChartersCharters

• Internal audit ChartersInternal audit Charters

• Drafting of charter in line with the Drafting of charter in line with the IIA standards and King Report.IIA standards and King Report.

• Approval processApproval process

Audit Committee Audit Committee challengeschallenges• Why was IA involved?Why was IA involved?• What we did?What we did?

– Recruitment of members.Recruitment of members.– Compliance with the Public Finance Management Act Compliance with the Public Finance Management Act

with regard to the composition.with regard to the composition.– Appointment.Appointment.– Contracts.Contracts.– Declaration of interest.Declaration of interest.– Meetings and remuneration.Meetings and remuneration.

• Results?Results?– Effective AC who helped the IA achieve its independence.Effective AC who helped the IA achieve its independence.– IA recommendations taken seriously and management IA recommendations taken seriously and management

accounting for non - implementationaccounting for non - implementation

Development of 3 Year Rolling Development of 3 Year Rolling Strategic and Annual IA Plans Strategic and Annual IA Plans

• Why develop a strategic plan?Why develop a strategic plan?

• Conducting risk assessmentsConducting risk assessments•Outsourcing/co–sourcingOutsourcing/co–sourcing

•Preparation for the risk assessment Preparation for the risk assessment workshopsworkshops

•One on one discussion with management.One on one discussion with management.

•Developing a risk profileDeveloping a risk profile

•Approval of the IA plansApproval of the IA plans

On-Going Development of IA On-Going Development of IA plans plans

• Dealing with ad hoc assignments Dealing with ad hoc assignments (assurance related requests)(assurance related requests)

• Dealing with fraud related ad hoc Dealing with fraud related ad hoc requestsrequests

• Developing IA structure and Developing IA structure and identifying resourcesidentifying resources

• Budget approvalBudget approval

ReportingReporting• Why report?Why report?

– Compliance with standardsCompliance with standards– CommunicationCommunication– Managerial accountabilityManagerial accountability

• How we did it?How we did it?– Report to managementReport to management– Report to Audit Committee (quarterly or activity Report to Audit Committee (quarterly or activity

report)report)

• Issues that emerged?Issues that emerged?– Handling disagreements with management on findingsHandling disagreements with management on findings

Relationships with the External Relationships with the External AuditorsAuditors

• Why establish the relationship?Why establish the relationship?

• How was this achieved?How was this achieved?

• Results?Results?– Reliance on IA workReliance on IA work– Involvement in the audit steering Involvement in the audit steering

committee of the Office of the Auditor committee of the Office of the Auditor GeneralGeneral

Ongoing Challenges Ongoing Challenges

• Covering the entire IA planCovering the entire IA plan

• Identifying risks at the strategic planning Identifying risks at the strategic planning levellevel

• Use of audit software to conduct auditsUse of audit software to conduct audits

• Quality Assurance ReviewQuality Assurance Review

• Annual Review of ChartersAnnual Review of Charters

• Balancing our marketing strategy with Balancing our marketing strategy with our strategy (i.e. ability to deliver)our strategy (i.e. ability to deliver)

ConclusionConclusion

In conclusion, ladies and gentlemen, it takes In conclusion, ladies and gentlemen, it takes more than passion or patience to establish more than passion or patience to establish an internal audit function in the public an internal audit function in the public service. service.

All those that are employed to head this All those that are employed to head this function must not only take IA as a job but function must not only take IA as a job but have passion to serve their countries and have passion to serve their countries and willingness to make a difference.willingness to make a difference.