establishment and development of the internal audit system for the public sector in kyrgyz republic...
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Establishment and Development of the Internal Audit System for the Public Sector in Kyrgyz Republic
INTERNAL AUDIT COMMUNITY OF PRACTICEISTANBUL 24-28 FEBRUARY 2008
Mrs. Shaidieva Dinara, Head of the Division of Methodology of Financial Statements and Internal AuditMrs. Omorova Zamira,Head of the Department of the Public Sector Internal AuditMinistry of Finances of the Kyrgyz Republic
TABLE OF CONTENT
I. Goal of the Presentation
II. Introduction to the Kyrgyz Republic
III. Topics for Discussion: What should be done?
I. Goal Of The Presentation
To discuss with the Community of Practice of Internal Auditors (COP-IA) views on
establishing internal audit in the Kyrgyz Republic, including structure, methodology
and professional development
II. Introduction to the Kyrgyz Republic
Kyrgyz Republic is situated in the north-east of Central Asia
It has borders with Kazakhstan on the north, Uzbekistan – on the west, Tadjikistan – on the south-west, China – on the south-east.
Population: 5 244 000 peopleNumber of public servants: 20 634 people
Area: 199.9 thou.sq.kmAverage altitude above sea
level: 2750 mThe highest altitude: 7439 m
(Pik Pobedy)The lowest: 394 m (on the
south-west of the Republic)
II. a. The Regulatory Institutions in area of Internal Audit in the Kyrgyz Republic
Private sectorPrivate sector
Financial market supervision and regulation agency – regulates audit activity on financial reporting independent audit. The main objectives: establishment of legislative and methodological basis, certification and licensing.
Audit organizations – having license to conduct financial reporting audit
Public sectorPublic sector
Chamber of Accounts – the supreme body of public finance external audit
Financial control Department of the Ministry of Finance - implements financial control and audit of budget funds in the budget institutions
Financial statements and internal audit methodology department of the Ministry of Finance – develops methodology and internal audit standards in public sector for in public sector for internal audit system developmentinternal audit system development
Internal audit departments in 6 (six) Ministries – have internal have internal audit functions audit functions
II. b. The legal framework for audit activity regulation in the Kyrgyz Republic
Private SectorPrivate Sector
The Law «On Auditing Activity» since 2002 regulates audit activity on financial reporting independent audit
International Audit Standards since 2003
Financial Reporting International Standards since 2001
Public SectorPublic Sector
The Law on «Chamber of Accounts of the Kyrgyz Republic» since 2004 regulates audit of the state budget execution
Regulation on “The Ministry of Finances” envisaging its rights to undertake internal audit over use of the budget
Internal Regulations of 6 Ministries indicate presence of internal audit departments in the ministries
II. c. Prerequisites for the internal audit system
establishment in the public sector
II.. Resolution of urgent issues Resolution of urgent issues:
A lack of clear delimitation between definition of financial management and control, external and internal audit
The existing internal audit departments in the Ministries undertake financial control (inspections), but not the internal audit aiming at law enforcement and development of the recommendations on increasing the ministry’s effectiveness and efficiency, increasing the effectiveness of internal control and quality.
II.II. Implementation of the Decrees Implementation of the Decrees of the President of the Kyrgyz of the President of the Kyrgyz
Republic:Republic:
«About state strategy on combating with corruption»
«On approval of the Action Plan for Public Finance Management System Reform»
II. d. First steps towards establishment of the internal audit system
Already developedAlready developed::
Draft Law of the Kyrgyz Republic «On internal Audit», approved by the Government of the Kyrgyz Republic on 28 September 2007 and forwarded to the Parliament for consideration
------------------------------- Draft Concept on establishment and
development IA system for state bodies and institutions of the Kyrgyz Republic for 2008-2013;
----------------------- Draft IA Standards in the Kyrgyz Republic
on the basis of Standards of the International Institute of Internal Auditors;
------------------------------
Guidelines on the IA
Goals: To define principles of IA at the state bodies To define competence framework of the
state bodies in the field of IA To establish responsibility and authority /powers on development of IA standards and methodology
-------------------------------- To strengthen the basic goals and tasks of
the IA system TO define the main directions for actions in
this area
---------------------------------
To set up single requirements on planning, reporting and monitoring of IA activities.
--------------------------------- To provide a methodical help to internal
auditors
III. Topics For Discussion: What should be done
Topic 1: Structuring and Coordinating of Internal Audit
Topic 2: Development of methodology
Topic 3: Professional development
III. a. Topic 1: Internal Audit Structuring and Coordinating
--How to make it work?
1. Legal Background (Law «On Internal Audit»):
An authorized state body in the area of the internal audit is one determined by the Government of the Kyrgyz Republic
The Regulation about the Authorized State Body in the area of the internal audit is also approved by the Government
Topic 1 (cont.) The Main Functions of the Authorized Body
1. Develops standards of IA aligned with standards of the International institute of internal auditors
2. Undertakes monitoring of observance of IA standards by IA services, and once in two years evaluates services of IA
3. Develops recommended IA methodology Provides consulting assistance for services of IA at the audit objects according to their inquiries
4. Provides methodological guidance and coordinates IA activities with the Chamber of Accounts in those objects of IA where there are no IA services
5. Prepares and represents annual report on activity of IA services for the previous year to the Government and The Chamber of Accounts
6. Coordinates activity on training and professional development of internal auditors
Topic 1 (cont.) Main issues on establishment of IA services in the ministries
How to determine in what agencies to establish IA services?- according to a budget size?
- according to an agency size (existence of regional departments)?
- other?
What should be included into report to the Government on IA services activity?
How to structure the relations to provide IA effectiveness and integrity?
Topic 1 (cont.) How to ensure internal audit Effectiveness and
Integrity? Proposals for discussion(“stick and carrot methods”)
«Stick» Method
To empower an Authorized Body to introduce to the Government for punishment those Ministries that haven’t provided in time the IA Plan implementation reports
Positive side: introduction of executive discipline at transition period
Negative side: discreditation of the reform; an excessive control can become in a future as an «inhibition factor»
«Carrot» Method
Conducting training seminars for heads of the ministries on IA as a part of an internal system of the organization management. To explain an overall objective of introduction - to help organization’s administration with efficient management.
At the initial stage to enter a system of incentives for heads of the ministries for introduction the modern audit methods
Positive side: undertaking reforms through comprehending a necessity for the ministries themselves;
Difficulties: additional financial expenses, a lack of qualified staff and experience in conducting training seminars
III. b. Topic 2: Development of the Methodology
On evaluation of needs in the audit;
On strategic and annual planning;
On monitoring the activity on the internal audit;
On preparation of quarterly and annual reports;
What experience do the countries with a developed internal audit system in the public sector have?
III. c. Topic 3: Professional development
Analysis and dissemination of successful experience of internal control and audit system development
Development of a training course programme, trainings focused on the internal control system and audit development
Development of the International Standards Certification System
