internal audit & corporate governance

A Study on Effective Implementation of Internal

Audit Function to Promote Good Governance in the

Public Sector

Zeleke Belay (BA, BSc, ACCA, MSc,)

Lecturer at College of Telecommunication and Information Technology

Department of Telecommunication Management

Email: [email protected]

Mobile: 251 9 11 66 98 61

Office : 251 11 416 99 00

P.o Box: 1413, Code 1110

Addis Ababa

Presented to the “The Achievements, Challenges, and Prospects of the Civil

Service Reform Program Implementation in Ethiopia” conference

Ethiopian Civil Service College Research, Publication &

Consultancy Coordination Office

April 2007

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ABSTRACT

Well performing internal audit function is one of the strongest means to monitor and promote

good governance system in an organization. As a result, in many countries it has received an

increasing attention as an important component of government financial management and as a

tool for improving the performance of the government sector. In connection to this, survey is

conducted on selected public enterprises in Ethiopia to assess and determine what current

practices and desired practices of the role of internal audit functions are and to identify the

gaps related to monitoring and promoting of good public sector governance system.

Findings reveal that, the existing IAF in the public sector has les satisfactory involvement to

asses the effectiveness of governance structure due to lack of resources, poor leadership for

IAF, absence of appropriate frame work to measure IAF performance and lack of competent

personnel.

However, to curb corruption and inefficiency in the public sector of Ethiopia by promoting

accountability and greater transparency about government programs and services, it is

mandatory to have brave IAF as part of modern management control system that in turn needs

IAF itself to have appropriate governance structure, mobilizing sufficient and appropriate

resource and competent personnel.

Keywords: Internal audit function, good governance, public sector, cavil service reform

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ABBREVIATIONS AND ACRONYMS

CBE Commercial Bank of Ethiopia

CTIT College of Telecommunication & IT

EAL Ethiopian Air Line

EIC Ethiopian Insurance Corporation

ETC Ethiopian Telecommunication corporation

IAF Internal Audit Function

IIA Institute of Internal audit

CPD Continuous Professional Development

CAE Chief Audit Executive

CSRP Cavil Service Reform program

FDRE Federal Democratic Republic of Ethiopia

OECD Organization for Economic Cooperation and Development

WTO World Trade Organization

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T A B L E O F C O N T E N T

Introduction.................................................................................................................................. 1

The role of auditing to promote good governance....................................................................... 2

Factors for the effectiveness of public sector audit activity ........................................................ 4

Research study agenda................................................................................................................. 8

Objective of the study .................................................................................................................. 9

Relevance of the study............................................................................................................... 10

Methods of data gathering and reliability .................................................................................. 11

Analysis methods ....................................................................................................................... 11

Empirical results and discussion................................................................................................ 12

Summary and conclusion........................................................................................................... 16

Scope of the study and related areas for future research ........................................................... 19

References.................................................................................................................................. 20

Annexes...................................................................................................................................... 21

Introduction

Good governance in an organization is a tool to achieve organizational strategy. According to the

professional guidance of the Institute Internal Auditors (IIA), public sector governance

encompasses the policies and procedures used to direct an organization’s activities to provide

reasonable assurance that objectives are met and that operations are carried out in an ethical and

accountable manner. As indicated under Figure 1, governance in the public sector relates to the

means by which goals are established and accomplished to address the needs and expectations of

several stakeholders.

Figure 1: Organizational Governance

Source: Hermanson, L. & Rittenberg, E. (2003)

It also includes activities that ensure a government’s credibility, establish equitable provision of

services, and assure appropriate behavior of government officials to reduce the risk of public

corruption (IIA, 2006).

Over the past years, there has been a loud call for “good governance” of organizations. This call

began with a focus on major public companies and has expanded to cover a broad range of

organizations. As indicated in Figure 2, at least three key factors underlie the call for improved

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governance— organizational disasters (that can be caused by corruption, fraud, bankruptcy,

etc…), changes in ownership patterns, and the legal environment.

Figure 2: Demand for Governance

Source: Hermanson, L. & Rittenberg, E. (2003

The role of auditing to promote good governance

The United Nations has identified the basic characteristics for good governance in the public

sector as portrayed under Figure 3. Among these core elements of good governance in the public

sector, the IAF can emphatically focuses on the functioning and performance of the public

sector. The four related characteristics of good governance are transparency, public

accountability, effectiveness/efficiency and responsiveness. As a result, the IAF has always been

viewed as an integral part of the government financial management and increasingly as an

instrument for improving the performance of the government sector.

Government auditing is a cornerstone of good public sector governance. By providing unbiased,

objective assessments of whether public resources are responsibly and effectively managed to

achieve intended results, auditors help government organizations achieve accountability and

integrity, improve operations, and instill confidence among citizens and stakeholders. The

government auditor’s role supports the governance responsibilities of oversight, insight, and

foresight. Oversight addresses whether government entities are doing what they are supposed to

do and serves to detect and deter public corruption.

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Figure 3: Elements of Good Governance System

Source: http://www.rekenkamer.nl/9282400/v/

Insight assists decision-makers by providing an independent assessment of government

programs, policies, operations, and results. Foresight identifies trends and emerging challenges.

To fulfill each of these roles, auditors use tools such as financial audits, performance audits, and

investigation and advisory services as presented under Figure 4 (Hermanson, R. & Rittenberg, E.

2003; IIA, 2006).

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Figure 4: Nature of Internal Audit Activity

Source: Hermanson, L. & Rittenberg, E. (2003

Factors for the effectiveness of public sector audit activity

The professional guidance of the Institute Internal Auditors (IIA), states that an effective public

sector audit activity strengthens governance by materially increasing citizens’ ability to hold

their government accountable. Auditors perform an especially important function in those

aspects of governance that are crucial in the public sector for promoting credibility, equity, and

appropriate behavior of government officials, while reducing the risk of public corruption.

Therefore, it is crucial that government audit activities are configured appropriately and have a

broad mandate to achieve these objectives. The audit activity must be empowered to act with

integrity and produce reliable services, although the specific means by which auditors achieve

these goals vary. At a minimum, government audit activities need (IIA, 2006) organizational

independence, audit charter, unrestricted access to any forms of audit evidences, sufficient

funding, competent leadership and staff, existence of audit committee, stakeholders’ support,

audit standards and unlimited scope.

Organizational independence

Organizational independence allows the audit activity to conduct work without interference by

the entity under audit. The audit activity should have sufficient independence from those it is

required to audit so that it can both conduct its work without interference and be seen to be able

to do so.

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The historical reporting relationship between Internal Auditing and the finance unit began to

change during the latter 20th century (Chair, M. 2003). The CFO as well as other heads of

business units continues to need to know what is right and wrong with their finances and

operations within their scope of company responsibility. The increasing frequency of financial

reporting and external auditing failures, however, motivated the Internal Auditing profession to

seek greater independence for its actions and judgments. As a result, in countries where the role

of internal audit is highly valued functional reporting preference has shifted from current senior

officers to the Board or Audit Committee and administrative reporting preference is extend to the

Board or Audit Committee and retain the present report links with senior management (Chair, M.

2003). But the question to be raised from our countries perspective is that, is the administrative

and functional reporting of the internal audit function clearly defined in the Audit Charter of

public institutions of Ethiopia?

A formal mandate (Existence of approved audit charter)

As per the IIA pronouncements, in every type of entity, the Audit Committee should develop

appropriate Internal Audit Charter that specifies on how the Internal Audit function could be

administered and approved by senior management. The government’s constitution, charter, or

other basic legal documents should establish the audit activity’s powers and duties. The existence

of proper audit charter helps the audit function to perform its role independently of management

influence and objectively. The question in here is that, does the relevance of audit charter known

in public institutions of Ethiopia, if so, do they have? Proclamation No. 17/1996, Part Two,

Article 6, stipulates the responsibilities of internal audit function in public bodies, but it doesn’t

say anything about on how the function itself could be managed. It is not clear which Ethiopian

law requires public bodies to define the administrative and functional reporting, the right that

auditors have in executing their duty, their remuneration, performance appraisal, etc in the form

of audit charter.

Unrestricted access

Audits should be conducted with complete and unrestricted access to all forms of audit evidences

like employees, property and records.

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Sufficient funding

The audit activity must have sufficient funding relative to the size of its audit responsibilities.

This important element should not be left under the control of the organization under audit

because the budget impacts the audit activity’s capacity to carry out its duties.

Competent leadership

The management of the internal audit function is critical to its effectiveness. In many countries,

management of the internal audit function is often poor- poor work practice, lack of planning and

weak personnel management system. Moreover, management is constrained by the institutional

management for internal audit function, which often compromises the role of the internal audit as

an aid to internal management (Diamond, J 2002).

Competent staff

Competency of auditors determines the quality of the audit work performed in an organization.

Competency is measured in terms of academic level, experience, skill and the effort of staffs for

continues professional development. Competency determines the efficiency of the auditor in

setting a systematic and disciplined approach to evaluate and improve the effectiveness of risk

management, control, and governance processes. In Ethiopia, initially it was Auditor General

that was responsible for maintaining the finical and operational activities of public enterprises.

However, due to the low quality and inadequate number of staff that the Auditor General has,

Audit Service Corporation was established by Proclamation No. 126/1977, so as to accommodate

for professional auditing of public enterprises and to give guidance needed so badly in the

country. However, it is noted that, the Audit Service Corporation had no staff to even perform

the normal financial audit of enterprises leave alone to extend itself to more lofty ideas of

development in the profession (Kinfu, J, 2006). Given this situation, how competent are the

internal auditors working in public sector of Ethiopia to assess the governance system adopted in

the public sector?

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Existence of Audit Committee

Independency and objectivity of internal audit function depends on to whom it reports to. In an

organization where there is audit committee, the internal audit function should report to the audit

committee. Is it legally mandatory to have Audit Committee in public institutions of Ethiopia so

that independency and objectivity of internal auditors could be maintained?

Stakeholder support

The legitimacy of the audit activity and its mission should be understood and supported by a

broad range of elected and appointed government officials, as well as the media and involved

citizens. But from the perspective of Ethiopia, do concerned stakeholders value the various

internal audit activities and give the required support?

Professional audit standards

The IIA audit standards support the implementation of elements mentioned above in audit

function of public bodies and provide a framework to promote quality audit work that is

systematic, objective, and based on evidence. International Organization of Supreme Audit

Institutions has also issued its own auditing standards to guide the auditing and accounting

practices in the public sector (Diamond, J 2002). But when it comes to the Ethiopian case we

have no any standard that reflects “the best practices” for public sector auditing neither we are

aware of exactly which country’s standards we should follow or are following?

Unlimited Scope

The IIA standard described the scope of the IAF as a tool of management where the internal

audit function closes the loop in the public sector management cycle to ensuring the efficient and

effective use of resources. For many parts of the world, the internal audit has often been, and

continues to be defined rather narrowly-focusing on financial compliance and regularity, rather

than broader management issues. Moreover, governance problems and lack of professional

competence also constraints the internal audit function to this role and hinders its ability to

generate timely and relevant reports (Diamond, J 2002).

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Given these considerations, it is perhaps not surprising that one of the significant problems often

identified in countries’ public sector governance system is that the internal audit function is weak

and ineffective (Diamond, J 2002). As a result, it is felt that this weakness prevails to such extent

that it impacts more generally on fiscal transparency and governance issues in the public sector.

To sum up, the internal audit function could be a major asset for improving public confidence in

financial reporting and corporate governance if the above-mentioned elements are maintained.

However, the question from our country’s perspective is that, does internal audit function in the

public sector do satisfy this requirements and grasp this opportunity? If not what efforts are made

so far to organize such function in the profession and by the government? The following sections

of this report describe the research study agenda, objectives of the study, methodologies for data

gathering and analysis.

Research study agenda

The importance of internal audit function to enhance improved accountability and greater

transparency within public sectors is well noted by concerned governmental bodies and known

scholars. For example, the Federal Ethics and Anti-corruption Commission of Ethiopia

mentioned that, inadequate auditing and accounting is one of the root causes for corruption and

inefficiency in the public sector of Ethiopia. If such root causes of corruption are not addressed

appropriately, the Country’s poverty reduction and development programmed will definitely face

serious challenges (http://www.feac.gov.et). Moreover, J Kinfu (2006) has also noted that one of

the strongest means to monitor ethics and governance in government institutions can be through

the audit function. These statements clearly indicate the contribution that internal audit function

can have towards to the government’s efforts of solving the macro problem, poverty, through

effective public sector governance.

Internal Auditing's importance in Ethiopia was formally recognized in the early 1930s by the

country's first Constitution (Wolderuphael, WG 1998). Moreover, Proclamation N0. 68/1997

requires that, the FDRE new economic policy be supported by a modern and reliable audit

system in order to ascertain proper implementation through effective monitoring of

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administrative, developmental and service rendering institutions in the Federal Public Sector. But

what is meant by modern and reliable audit system? Can we say that such modern and reliable

audit system is effectively implemented in the Public Sectors of Ethiopia at the moment, as the

proclamation requires?

As per the definition of the Institute of Internal Auditors (IIA);

“Internal auditing is defined as, an independent, objective assurance and consulting activity

designed to add value and improve an organization's operations. It helps an organization to

accomplish its objectives by bringing a systematic, disciplined approach to evaluate and

improve the effectiveness of risk management, control, and governance processes”.

According to this definition, an internal audit function could be viewed as a “first line defense”

against inadequate organizational governance and financial reporting. With appropriate support

from the Board of Directors’ and Audit Committee (if any), the internal audit staff is in the best

position to gather intelligence on inappropriate accounting practices, inadequate internal

controls, and ineffective corporate governance. However, as per the report issued by a team that

studies the effectiveness of the Ethiopian Civil Service Reform Program (1994 E.C), it is noted

that the Internal Audit Function in the public sector of Ethiopia is too weak to contribute towards

the government’s effort in the process of implementing the reform. Therefore, finding the

solution that causes this will have tremendous contribution for policy makers and other interested

stakeholders in the area.

Objective of the study

The primary objective of this study is to evaluate to what extent the current and planned internal

audit function is positioned to contribute towards one of the major objective of the Civil Service

Reform Program (CSRP) of ascertaining good organizational governance system in public sector

for public accountability and service delivery improvement. To assess this basic objective, the

specific aims of the research will focus on answering the following questions.

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i. To what extent are internal auditors involved in auditing the effectiveness of the

governance structure of the organization?

ii. What are the impeding factors that hinder the IAF in the public sector not to perform its

role in enhancing good governance (if any)?

iii. What kinds of safeguards need to be built into the IAF to ensure that internal auditing will

meet its external governance responsibilities in the public sector of Ethiopia?

Relevance of the study

Enquiries of this type can help to asses the extent to which the laws, policies and procedures

promulgated regarding IAF in the public sector are implemented. If not, identifying causes

related to implementation of those laws and regulations and creating awareness in this regard can

contribute an input for legislators in improving those laws policies and procedures too.

Moreover, one means of creating the profession’s value in Ethiopia is certainly through

conducting researches of this type as WG Wolderuphael (1998) pointed out in his article by

saying;

“If we focus only on the increase in the number of internal audit units and in the

number of auditors employed, we can certainly say that internal auditing in Ethiopia

has come a long way. However, in terms of skilled and qualified manpower; properly

delineated authority and responsibilities; and a reporting status that permits the

maintenance of integrity, objectivity, and professional independence, internal auditing

needs a new lease on life”.

Furthermore, studies of this type can create awareness among individuals and beneficiaries of the

internal audit service about the current developments in the internal audit profession.

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Methods of data gathering and reliability

The primary data included in this report is collected through a survey conducted using detail

questionnaire (Annex 2). The survey is conducted with the goal of assessing the effectiveness of

the internal audit function in the public sector. Structured questionnaires were sent to 40 internal

auditors at the ETC, CBE, EIC and EAL, i.e., 10 questionnaires were sent for internal auditors in

each public enterprise. The response rate is 70 % as summarized below. The empirical data

gathered from the EAL is excluded from the study since it is found that only three senior staffs

completed the questionnaires. The management of the IAF was not willing to allow those

auditors at meddle and lower level position in completing the survey. As a result, I feel that the

response from the three senior level auditors may not represent the view of other auditors in the

company. Therefore, the effective response rate is 63%, which still can be considered as

acceptable level of reliability.

S. No.

Company Name

No. of Questionnaires

sent

No. of Questionnaires

Collected

Response rate

1 Ethiopian Telecommunication Corporation (ETC)

10 8 80%

2 Commercial Bank of Ethiopia (CBE) 10 7 70%

3 Ethiopian Insurance Cooperation (EIC) 10 10 100%

4 Ethiopian Air Line (EAL) 10 3 3%

Total 40 28 70%

Secondary data are included in this research by referring most recent information from

authoritative web pages and government reports.

Analysis methods

Both quantitative and qualitative data analysis methods are used. First, the data collected using

the questionnaire is analyzed by using spreadsheet for descriptive statistics and analysis methods.

Qualitative method of analysis is employed for feedbacks obtained using open-ended questions.

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Empirical results and discussion

In discharging governance responsibilities, the key role of IAF is to assist the board and/or its

audit committee by delivering a review of organization’s control culture, an objective evaluation

of the existing risk and internal control framework, ensuring existence of appropriate internal

management control system (monitoring compliance with laws, regulations, supervisory

requirements and relevant internal policies), considering management’s response to major

internal audit recommendations and progress in their implementations.

To meet these responsibilities, as mentioned earlier in the literature review part, the IAF

governing structure should have organizational independence, existence of approved mandate in

the form of charter, unrestricted access to any forms of audit evidences, sufficient funding,

competent leadership and staff, existence of audit committee, stakeholders’ support, availability

of defined audit standards to be adhered and unlimited scope. To assess the effectiveness of the

public sector audit activity, critical success factors for internal audit function in each of the above

areas are identified and the internal auditors in each of the study units were asked using

questionnaire as presented under Annex 2. The empirical data is analyzed using spreadsheet and

presented under Annex 1 and discussion is made in the following section.

Organizational independence

From the basic statistics of the response, it is found that the IAF is strategically positioned (68%)

to contribute to organizational strategy and the current structure of IAF seems sound to promote

objectivity, consistency & business understanding (52%) across the three public enterprises.

However, respondents strongly feel that the current organizational structure doesn’t allow them

to report when officials in the organization abused their power against public interest (equity is

in danger, 64%), lose their integrity & honesty (probity of management is in danger, 64%) and

when officials withhold key information to the public (transparency is in danger, 80%). As some

auditors pointed out, this is basically because, in the current situation there is no any law that

protects internal auditors from job displacement due to his/her reports of audit finding against

management. As a result, internal auditors remain to be manipulated by management.

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Moreover, it is found that the mission and role of IAF is not defined with in a wider governance

framework and are not effectively communicated in all the three enterprises. This is may be

because of the absence of approved mandate to IAF that define the audit activities to be

performed, the power and duties, functional and administrative lines, etc. With the exception of

CBE, both ETC and EIC are still in the process of having the charter for IAF. It seems that,

auditors in all enterprises are free to choose any transaction or area of interest for audit (72%).

However, all organizations do not have any rule to ensure auditors cannot audit an area for which

they previously had responsibility which in turn will expose them to lose their independence and

obscure their wrong doing committed as an administrative staff.

IAF human resource management

As per the survey result, in all enterprises there is problem of human recourse management. Lack

of sufficient staff (60%), non-existence of appropriately qualified staff (64%), insufficiency of

skills and experience (76%), inflexible staffing strategy (64%) are the major problems identified

to be major setbacks for the effort of strengthening the IAF in these enterprises. The existence of

few certified internal auditors and staffs who are pursuing their study towards certification are

noted in all study units. But compared to the required number of staff it is impossible to say that

it is satisfactory.

Respondents (72%) do also believe that, the existing salary scale is not sufficient enough to

attract new talent, retain the most talented, skilled and experienced staffs and difficult to

motivate performance. One respondent explained that, as auditors get experienced and reach to

senior level they usually transfer to another department like finance or other related managerial

areas of the same organization since the career path and remuneration system is less attractive in

IAF. This causes the IAF in all enterprises to remain the least preferred area to work by talented,

skilled and senior individuals despite the demanding nature of the work for such type of

manpower.

Absence of in-service trainings (68%), non-existence of quality assurance (72%) and external

review (60%) of the IAF contributes to the audit process of each enterprise to remain compliance

oriented.

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Scope of internal audit function

As per the response result, it is noted that the IAF performed in all study units is based on annual

plan (92%), defining the objective and scope of each engagement (68%) is well performed.

However, still the planning and audit process remains to be compliance oriented than following

modern approaches of planning and auditing based on risk identification (68%). The most

important areas of audit activities to enhance good governance but most least considered in

sample enterprises includes none existence of:

i. Assessing adequacy of corporate governance structure (92%),

ii. Evaluating management’s capability to risk management and control (76%),

iii. Evaluating the security system for maintaining data reliability and integrity (56%). But at

CBE satisfactory effort is made to establish IT audit department and develop staffs

capability. Respondents from the most technology intensive company, ETC, do not feel

that their IT audit function is competent enough to examine data reliability (50%) and the

EIC is the most least (80%) and,

iv. Assessing to identify and monitor risks against achievement of organization’s strategy

(80%).

Most highly performed internal audit activities (the response rate ranges from 68% to 100%)

include;

i. Compliance audit,

ii. Financial and regulatory audit,

iii. Checking budget implementation,

iv. Evaluating keeping accounting recordings,

v. Protection of assets and,

vi. Fraud detection.

IAF play vital role in advising management regarding on how to reduce cost and improving

efficiency and effectiveness (60%). However, IAF has fewer roles to advice management

regarding:

i. Assessing existence of good governance structure,

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ii. Enhancing accountability, ethical practices & anticorruption,

iii. Effective risk assessment and management,

iv. Designing and implementing internal control system,

v. Designing sound business process,

vi. IT/IS development, acquisition and operation and

vii. Project management and evaluation.

The above scenarios clearly indicate that, the activities of IAF in each of the study units are more

of traditional type that emphasizes on financial, compliance and regularity, rather than

addressing broader management and governance issues.

Access to audit evidences

It seems that auditors are fully allowed (68%) to access audit evidences in any forms. However,

some auditors mentioned that, in some situation it is difficult to find board minutes for review

and procurement contracts.

Availability of resources to IAF

Modern auditing demands the use of appropriate technology and auditing the technology itself as

audit area, developing staffs’ skills through several cost effective meanses like trainings and

other CPD forms. However, in enterprises under this survey, it is noted that technology as a tool

for auditing is almost not used (96%), budget for CPD is also not allocated (80%) and it is also

not common to seek expertise assistance (76%) when in house staff lacks knowledge in the audit

area.

Leadership for IAF

The quality of leadership for IAF is also found to be less satisfactory. The statistical summary of

the response result indicates that, there is no sufficient policy to recruit, retain and manage highly

skilled staffs (88%), no effort is made to integrate and coordinate audit evolution activities (60%)

and to develop and implement appropriate framework to measure internal audit performance

(84%).

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Existence of audit committee

It is noted that ETC and EIC doesn’t have audit committee and respondents believe that it is very

important to have it so that the independence of the IAF could be enhanced. On the other hand,

even though CBE has audit committee, respondents still don’t believe that the audit committee

has right mix of knowledge, experience and representation of major stakeholders.

Stakeholders' support

The feedback indicates that, there is major support from executive management (72%), board

(56%) and from audit committee where there is (24%).

Existence of clearly identified and recommended professional auditing standards

Respondents are not cognizant of any internal audit standards (64%), rather they depend on the

audit manual of the organization. However, this can stifle their capacity no to think beyond the

procedure in a situation when they encounter professional ambiguities.

Implementation of recommendations

Respondents don’t believe that corrective action is taken based on audit findings identified by the

IAF (64%). Some respondents added that, auditing is done and findings are reported just for the

purpose of formality. However, CAEs still tries to control and follow up the implementation of

audit findings based on rectification during the audit process of the following year.

Summary and conclusion

Recently, in developing countries, there has been increased interest and more emphasis placed on

the IAF as one tool to crisis prevention and enhancing good governance system of the public

sector (Diamond, J 2002). This has arisen from a number of sources. In the OECD and WTO

member countries and in countries that are highly dependent on donation and loan, for example,

there is a call for improved accountability and greater transparency that resulted in more

information about government programs and services that in turn requires improved financial

reporting system. At the same time, the increased emphasis on accountability and improving

public sector performance has demanded management to “protect” itself by improving the IAF

procedures that will provide them some minimal assurances of meeting these external demands.

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Moreover, in response to the occurrence of repeated crises, the IIA has issued auditing standards

to guide the auditing and accounting profession in the public sector. Due to these and similar

remarkable changes, countries are expected to develop their own public sector auditing standards

by considering the local environment and keeping it consistent with the international perspective.

In this regard, the government of FDRE as part of its development strategy to stop various mafia

officials and other criminal organizations, it is becoming obvious that addressing the problems of

economic crime is vital. For example, issuing Proclamation No.68/1997 and the issuance of

internal audit procedure manual for the public sector backs the relevance of IAF. Moreover, the

issuance of Proclamation No. 235/2001 to establish the Federal Ethics and Anti Corruption

Commission and the implementation of the CSRP are clear indicators of government’s concern

to embed good governance system in the public sector of Ethiopia.

Despite all theses efforts of the government of FDRE, establishing good governance system in

the public sector remain to be less satisfactory. For example, as per the report of Transparency

International, a civil society organization leading the fight against corruption, Corruption

Perceptions Index of year 2006, Ethiopia stood at 133 out of 142 countries in the world where

Finland is the first (www.transparency.org). Moreover, in its 2007 worldwide index of economic

freedom, the Heritage Foundation ranked Ethiopia 116 out of 154 countries where Zimbabwe

stood last (154) ( http://www.heritage.org/).

All these secondary sources indicate the existence of less satisfactory development towards

enhancing good governance system in the public sector of Ethiopia. One reason for this macro

problem is due to poor management control system that sustained in the public sector since long

years. The empirical data discussed above supports this argument as summarized below.

Involvement of IAF in auditing effectiveness of the governance structure

As per the report issued by the CSRP studying steering committee, the existing governance of

IAF in the public sector is poor and basically compliance oriented, existence of inappropriate

management control system, problem of recruiting and maintaining well trained and experienced

personnel in finance and auditing are well quoted. Moreover scenarios presented in the

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empirical data clearly indicate the activity of IAF in each of the study units are more of

traditional type that emphasizes on auditing financial compliance and regularity, rather than

addressing broader management and governance issues that basis risk for selection of audit area.

Therefore, it is possible to say that the existing IAF in the public sector has less satisfactory

involvement to assess the effectiveness of governance structure.

Impeding factors for IAF in enhancing good governance

Major, impeding factors for IAF to involve in enhancing good governance system are identified

to be:

i. The quality of leadership for IAF is also found to be less satisfactory and they are found

to be less qualified to the profession compared to staffs under them. It is also noted that

all institutions lack the policy to recruit, retain and manage highly skilled staffs with the

exception of employees in other departments.

ii. No effort is made to integrate and coordinate audit evolution activities and absence of

appropriate framework to measure internal audit performance in line with the envisaged

governance structure.

iii. Two of the enterprises under the survey do not have audit committee. In the organization

where audit committee exists, they have no clearly defined relationship with audit staffs

and less frequent meetings are conducted with them so as to follow up and control the

effectiveness of the IAF from the perspective of strengthening governance structure.

iv. Less utilization of technology as a tool for auditing, giving less attention to in service

training with modern auditing technology and absence of budget for CPD so as to keep

auditors up to date with current changes.

v. Most auditors are not cognizant of any internal audit standards as a result they are

dependent on the audit manual of the organization which in turn can stifle their capacity

to think beyond procedure in a situation when they encounter professional ambiguities.

vi. Management has problem of implementing recommendations even though the CSRP

suggests management to take prompt and responsive action on all findings and

recommendations made by IAF.

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Consequences

Given the above impeding factors, the role of the internal audit function, as a tool to enhance

good governance, promoting responsiveness, enhancing effectiveness and efficiency, improved

accountability and greater transparency within public sectors will remain nightmare. Federal

Ethics and Anti-corruption Commission of Ethiopia that emphasizes on corrective action by

penalizing corrupted and malpractice individuals cannot be a substitute for modern IAF. Beside

to this, there must be reliable management control system that can prevent and detect before the

occurrence of inefficiency and malpractices as envisaged by Proclamation N0. 68/1997 of

FDRE. Modern and reliable internal audit system is a typical tool for this. Moreover, the process

of implementing the CSRP to ascertain good organizational governance system in public sector

for public accountability and service delivery improvement will remain challenged by inefficient

management control system.

Required safeguards to ensure that IAF will meet governance responsibilities

To curb corruption and inefficiency in the public sector of Ethiopia by promoting accountability

and greater transparency about government programs and services, it is mandatory to have brave

IAF as part of modern management control system. To this end, the IAF itself need to have

appropriate governance structure, mobilizing sufficient and appropriate resource and competent

personnel.

Scope of the study and related areas for future research

The scope of this research is broad and attempts to assess the effectiveness of the IAF in public

enterprises of Ethiopia to promote good governance system. For this, the survey is limited to

state owned enterprises, CBE, ETC and EIC as study unit. As a result, I cannot say that the

findings of this research can be equally applicable to the private sector, for not for profit type of

entities and other government organizations too.

In connection to this limitation, it is possible to carryout further research how the issues look like

in other types of government, not for profit and the private sector. So that, comprehensive

conclusion can be drawn about the role of the profession it can play in enhancing good

governance in any form of organization across different organizational ownership types.

20

References

Auditing in Public Sector Governance, The Role of Auditing In Public Sector Governance, Professional Guidance, Setting Standards, 2006. Retrieved on January 17, 2007 from http://stage.theiia.org/research/research-reports/

Annual Performance Report for 1997 EC Budget Year, Federal Ethics and Anti Corruption Commission of Ethiopia. Retrieved on January 17, 2007 from http://www.feac.gov.et/web_collection/Com_report_english.htm#up

Chair, M. 2003, Internal audit Independence and Corporate Governance, The Institute of Internal Auditors, Retrieved on January 17, 2007 from http://stage.theiia.org/research/research-reports/

Diamond, J. 2002, The Role of Internal Audit in Government Financial Management: An International Perspective, Working Paper Retrieved on January 17, 2007 from http://www.imf.org/external/pubs/ft/wp/2002/wp0294.pdf

Flemming, T. 2003, The Internal Audit Function: An Integral Part of Organizational Governance, The Institute of Internal Auditors Research Foundation. Retrieved on January 17, 2007 from http://stage.theiia.org/research/research-reports/

Kinfu, J. 2006, Accounting in the Revolutionary Process of Ethiopia, Ethiopian Journal of Accounting and Finance, Vol., No. 2 pp 62-77, October, 2006

Kinfu, J. 2006, Understanding and Fighting Corruption, Corruption: From Moral Issue to Government Agenda, Ethiopian Reporter. Retrieved on January 17, 2007 from http://www.ethiopianreporter.com/modules.php?name=News&file=article&sid=10623,

The Heritage Foundation, Index of Economic Freedom 2007, Retrieved on January 17, 2007 from http://www.heritage.org/

The Netherlands Court of Audit: Essentials, Essentials of Good Governance, Retrieved on January 17, 2007 from http://www.rekenkamer.nl/9282400/v/

Transparency International: the global coalition against corruption, Transparency International Corruption Perceptions, accessed on the 20th of March. http://www.transparency.org/policy_research/surveys_indices/global/cpi

Wolderuphael, WG. 1998, Ethiopia - looking to the future - internal auditing in Ethiopia, Retrieved on January 17, 2007 from http://www.findarticles.com/p/articles/mi_m4153/is_n1_v55/ai_20568150

21

Annexes

1. Summary of the empirical data

Commercial Bank of Ethiopia

Ethiopian Telecommunication Corporation

Ethiopia Insurance Corporation Aggregate

S.N

o.

Questions Yes No DK Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl.

1 ORGANIZATIONAL INDEPENDENCE

Is IAF strategically positioned to contribute to organizational strategy? 86% 14% 0% 0% 63% 38% 0% 0% 60% 40% 0% 0% 68% 32% 0% 0%

Is mission & role of IAF considering the governance framework? 29% 57% 14% 0% 50% 50% 0% 0% 30% 60% 10% 0% 36% 56% 8% 0%

Is current structure of IAF promoted objectivity, consistency & business understanding? 43% 57% 0% 0% 75% 13% 13% 0% 40% 50% 10% 0% 52% 40% 8% 0%

Can IAF report when:

Equity is endangering? 29% 71% 0% 0% 25% 63% 0% 0% 40% 60% 0% 0% 32% 64% 0% 0%

Probity of management officials is endangering? 29% 71% 0% 0% 25% 63% 0% 0% 40% 60% 0% 0% 32% 64% 0% 0%

Transparency is endangering? 0% 100% 0% 0% 0% 88% 0% 0% 40% 60% 0% 0% 16% 80% 0% 0%

Do you believe that, IAF is free to choose any transaction or area of interest for audit? 86% 0% 14% 0% 50%

100% 0% 0% 80% 20% 0% 0% 72% 40% 4% 0%

Does a rule exist to ensure that auditors cannot audit operations for which they previously had responsible? 43% 57% 0% 0% 25% 25% 38% 0% 10% 90% 0% 0% 24% 60% 12% 0%

2 IAF HUMAN RESOURCE MANAGEMENT

Existence of sufficient staff 71% 29% 0% 0% 13% 88% 0% 0% 40% 60% 0% 0% 40% 60% 0% 0%

Existence of Appropriately qualified staffs 14% 71% 14% 0% 13% 75% 13% 0% 40% 50% 10% 0% 24% 64% 12% 0%

Sufficiency of staffs’ skill & experience 14% 71% 14% 0% 25% 75% 0% 0% 0% 80% 20% 0% 12% 76% 12% 0%

Definition of staffs' core competency 14% 43% 29% 0% 63% 25% 13% 0% 30% 60% 10% 0% 36% 44% 16% 0%

Staffing strategy reflects mission, role & required competence 29% 29% 43% 0% 75% 25% 0% 0% 10% 70% 20% 0% 36% 44% 20% 0%

Flexibility of staffing strategy 14% 43% 43% 0% 50% 50% 13% 0% 10% 90% 0% 0% 24% 64% 16% 0%

22




S.N

o.


Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl.

Sufficiency of salary scale to attract & retain competent staffs 14% 57% 29% 0% 25% 63% 13% 0% 0% 90% 10% 0% 12% 72% 16% 0%

Organizing in service trainings for auditors 14% 71% 14% 0% 25% 63% 13% 0% 30% 70% 0% 0% 24% 68% 8% 0%

Existence of quality assurance programs 14% 57% 29% 0% 13% 63% 13% 0% 10% 90% 0% 0% 12% 72% 12% 0%

IAF is subject to external review 43% 57% 0% 0% 0% 75% 25% 0% 40% 50% 10% 0% 28% 60% 12% 0%

3 SCOPE OF INTERNAL AUDIT FUNCTION

Do you performing IAF on the basis of annual plan? 100% 0% 0% 0% 88% 13% 0% 0% 90% 0% 10% 0% 92% 4% 4% 0%

Do auditors receive plan for each engagement, establishing its objectives & scope? 71% 29% 0% 0% 75% 13% 13% 0% 60% 40% 0% 0% 68% 28% 4% 0%

Are IAF defined on the basis of prior risk analysis? 57% 43% 0% 0% 38% 63% 0% 0% 0% 90% 10% 0% 28% 68% 4% 0%

Does IAF performs the following: 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Assessing adequacy of corporate governance? 14% 86% 0% 0% 0% 100% 0% 0% 10% 90% 0% 0% 8% 92% 0% 0%

Risk management systems & controls? 29% 71% 0% 0% 38% 63% 0% 0% 10% 90% 0% 0% 24% 76% 0% 0%

Effectiveness? 43% 57% 0% 0% 75% 25% 0% 0% 50% 50% 0% 0% 56% 44% 0% 0%

Efficiency of resource utilization? 71% 29% 0% 0% 63% 38% 0% 0% 40% 60% 0% 0% 56% 44% 0% 0%

Compliance? 100% 0% 0% 0% 50% 50% 0% 0% 70% 30% 0% 0% 72% 28% 0% 0%

Examine data reliability? 71% 29% 0% 0% 50% 50% 0% 0% 20% 80% 0% 0% 44% 56% 0% 0%

Asses organizational policies, procedures & recommend best practices? 57% 43% 0% 0% 25% 75% 0% 0% 40% 60% 0% 0% 40% 60% 0% 0%

Identify & monitor risks against achievement of organization's strategy? 14% 86% 0% 0% 25% 75% 0% 0% 20% 80% 0% 0% 20% 80% 0% 0%

Financial & regulatory audit? 71% 29% 0% 0% 50% 50% 0% 0% 90% 10% 0% 0% 72% 28% 0% 0%

Do auditors systematically review the risk management process? 86% 14% 0% 0% 25% 63% 13% 0% 0%

100% 0% 0% 32% 64% 4% 0%

Examining Internal Control Systems:

Which of the following Audit activities performed by your audit function?

Compliance with law & regulations 100% 0% 0% 0% 100% 0% 0% 0%

100% 0% 0% 0%

100% 0% 0% 0%

23




S.N

o.


Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl.

Checking Budget implementation 71% 29% 0% 0% 75% 13% 13% 0% 90% 10% 0% 0% 80% 16% 4% 0%

Evaluating Keeping of accounting records (mistakes, delays, etc) 100% 0% 0% 0% 75% 13% 13% 0% 60% 40% 0% 0% 76% 20% 4% 0%

Evaluating management’s Efforts to the recovery of receivables, taxes & other collectables 86% 14% 0% 0%

100% 0% 0% 0% 70% 30% 0% 0% 84% 16% 0% 0%

Assessing Reliability & soundness of financial information 100% 0% 0% 0%

100% 0% 0% 0% 80% 20% 0% 0% 92% 8% 0% 0%

Protection of assets 100% 0% 0% 0% 100% 0% 0% 0% 70% 30% 0% 0% 88% 12% 0% 0%

Wastage of resources (human, financial & physical) 100% 0% 0% 0% 75% 25% 0% 0% 60% 30% 10% 0% 76% 20% 4% 0%

Under performance 0% 100% 0% 0% 38% 38% 25% 0% 50% 40% 10% 0% 32% 56% 12% 0%

Unethical behavior 57% 43% 0% 0% 50% 50% 0% 0% 40% 50% 10% 0% 48% 48% 4% 0%

Fraud detection 100% 0% 0% 0% 88% 13% 0% 0% 30% 60% 10% 0% 68% 28% 4% 0%

Are procedures for setting priorities concerning the use of budgetary resources subject to a specific review

29% 14% 43% 14% 0% 75% 25% 0% 30% 20% 30% 10% 20% 36% 32% 8%

Advisory Role of Internal Audit Function:

Does IAF perform the following asks?

Advise management on reducing cost & improving efficiency & effectiveness 71% 14% 14% 0% 50% 38% 13% 0% 60% 30% 10% 0% 60% 28% 12% 0%

Good Governance 29% 71% 0% 0% 13% 88% 0% 0% 10% 90% 0% 0% 16% 84% 0% 0%

Accountability 57% 43% 0% 0% 38% 63% 0% 0% 30% 70% 0% 0% 40% 60% 0% 0%

Ethical practices & anticorruption programs 43% 57% 0% 0% 38% 63% 0% 0% 50% 50% 0% 0% 44% 56% 0% 0%

Effective risk assessment and management 43% 43% 0% 0% 25% 75% 0% 0% 0% 100% 0% 0% 20% 76% 0% 0%

Designing and implementing internal control system 57% 43% 0% 0% 50% 50% 0% 0% 40% 60% 0% 0% 48% 52% 0% 0%

Sound business process 14% 86% 0% 0% 38% 63% 0% 0% 30% 70% 0% 0% 28% 72% 0% 0%

IT/IS development, acquisition and operation 0% 100% 0% 0% 0%

100% 0% 0% 30% 70% 0% 0% 12% 88% 0% 0%

Project Management 14% 86% 0% 0% 38% 63% 0% 0% 10% 90% 0% 0% 20% 80% 0% 0%

Program evaluation 14% 86% 0% 0% 75% 25% 0% 0% 10% 90% 0% 0% 32% 68% 0% 0%

24




S.N

o.


Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl.

4

EXISTANCE OF FORMAL MANDATE (APPROVED AUDIT CHARTER)

Are audit activities, power & duties, functional and administrative lines, etc of the internal audit are established or defined? 71% 14% 14% 0% 50% 25% 25% 0% 30% 70% 0% 0% 48% 40% 12% 0%

If yes, in which of the following forms:

Charter? 0% 0% 0% 0% 13% 0% 0% 0% 0% 0% 0% 0% 4% 0% 0% 0%

Government law? 43% 0% 0% 0% 0% 0% 0% 0% 10% 0% 0% 0% 16% 0% 0% 0%

Other forms of legal document? 29% 0% 0% 0% 50% 0% 0% 0% 30% 0% 0% 0% 36% 0% 0% 0%

5 ACCESS TO AUDIT EVIDENCES

Fully allowed 100% 0% 0% 0% 50% 0% 0% 0% 60% 0% 0% 0% 68% 0% 0% 0%

Partially allowed 0% 0% 0% 0% 38% 0% 0% 0% 40% 0% 0% 0% 28% 0% 0% 0%

Not allowed

0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

6 AVAILABILITY OF RESOURCES TO IAF

Technology utilization 0% 100% 0% 0% 13% 88% 0% 0% 0%

100% 0% 0% 4% 96% 0% 0%

Resource for CPD 14% 86% 0% 0% 13% 88% 0% 0% 30% 70% 0% 0% 20% 80% 0% 0%

Availability of other facilities as required 57% 43% 0% 0% 13% 88% 0% 0% 0% 100% 0% 0% 20% 80% 0% 0%

Possibility to seek expertise assistance 14% 86% 0% 0% 38% 63% 0% 0% 20% 80% 0% 0% 24% 76% 0% 0%

7 LEADERSHIP FOR IAF

Recruit, retain and manage highly skilled staffs 14% 86% 0% 0% 25% 75% 0% 0% 0% 100% 0% 0% 12% 88% 0% 0%

Develop/decision annual audit plans on the basis of risk 43% 57% 0% 0% 88% 13% 0% 0% 10% 90% 0% 0% 44% 56% 0% 0%

Integrate and coordinate audit evaluation activities 29% 71% 0% 0% 75% 25% 0% 0% 20% 80% 0% 0% 40% 60% 0% 0%

25




S.N

o.


Not Appl. Yes No DK

Not Appl. Yes No DK

Not Appl.

Minimize constraints for maintaining independency that

results from institutional arrangements 86% 14% 0% 0% 50% 50% 0% 0% 20% 80% 0% 0% 48% 52% 0% 0%

Develop and implement appropriate framework to

measure internal audit performance 14% 86% 0% 0% 38% 63% 0% 0% 0%

100% 0% 0% 16% 84% 0% 0%

8 EXISTANCE OF AUDIT COMMITTEE

Does your organization have audit committee? 100% 0% 0% 0% 0% 88% 13% 0% 0% 100% 0% 0% 28% 68% 4% 0%

If no, do you think that it is necessary to have it? 0% 0% 0% 0% 88% 0% 13% 0% 100% 0% 0% 0% 68% 0% 4% 0%

If yes, do you believe that the audit committee has right

mix to knowledge, experience, and representation of

major stockholders?

29% 29% 57% 0% 25% 0% 13% 0% 0% 0% 0% 0% 16% 8% 20% 0%

9 STAKHOLDERS' SUPPORT

Senior government body 0% 0% 0% 0% 13% 0% 0% 0% 0% 0% 0% 0% 4% 0% 0% 0%

Board 57% 0% 0% 0% 75% 0% 0% 0% 40% 0% 0% 0% 56% 0% 0% 0%

Audit committee 86% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 24% 0% 0% 0%

Executive management 86% 0% 0% 0% 75% 0% 0% 0% 60% 0% 0% 0% 72% 0% 0% 0%

Other staffs 71% 0% 0% 0% 13% 0% 0% 0% 40% 0% 0% 0% 40% 0% 0% 0%

10 IMPLIMENTATION OF RECOMMENDATIONS

Do you conduct audit activities in accordance with recognized standards? 14% 86% 0% 0% 38% 38% 25% 0% 30% 70% 0% 0% 28% 64% 8% 0%

11 IMPLIMENTATION OF STANDARDS

Do you feel that corrective measures are usually taken as a result of weaknesses noted by the internal audit Department? 43% 57% 0% 0% 13% 75% 13% 0% 30% 60% 10% 0% 28% 64% 8% 0%

Do you believe that, the head (CAE) of internal audit monitor and follow-up action taken by management to recommendations made by the audit function? 100% 0% 0% 0% 13% 50% 38% 0% 30% 50% 10% 0% 44% 36% 16% 0%

26

2. The questionnaire

A Study on Effective Implementation of Internal Audit Function to

Promote Good Governance in the Public Sector

The Case of Ethiopia

Objective of this survey Well performing internal audit function is one of the strongest means to monitor and

promote good governance system in an organization. The purpose of this research is

to conduct a survey on selected government organizations in Ethiopia and assess

and determine what current practices and desired practices of the role of internal

audit functions are and identify the gaps related to monitoring and promoting of

good governance system.

In line with this, you are kindly requested to complete this questionnaire. The

questionnaire is designed in a way that can be completed with no trouble, in each

question you are requested just to mark option(s) applicable to your organization.

Your responses will be treated confidentially and only for the purposes of this

research.

If you would like to receive copy of the research result, please write your E-mail in

here____________________________________________________.

I am very grateful for devoting your time and completing this questionnaire!!

With best regards, Zeleke Belay (MSc, ACCA) Lecturer Graduate School of Telecommunication and Information Technology (GSTIT)

27

Organizational Information Please provide the following information about your organization by writing in the

space provided.

1. Name of your organization ________________________________________________

2. Your position in the organization__________________________________________

I. Organizational independence 1. Do you believe that the internal audit function is strategically positioned to

contribute to organizational strategy performance?

Yes No Don't Know

2. Do you believe that the mission and role of internal audit function are defined

within a wider governance framework and are effectively communicated?

Yes No Don't Know

3. Do you believe that the current structure of internal audit promotes objectivity,

consistency and business understanding?

Yes No Don't Know

4. Do you think that the audit function in your organization has the ability to report

to relevant government authority if it is found that:

(Thick as much as you feel applicable to your organizational case)

Officials in the organization abused their power against public interest

(equity is in danger)

Officials lose their integrity & honesty (probity of management officials is in

danger)

Officials withhold (not disclose) key information to stockholders or to the

public (transparency is in danger)

5. While the audit function performs its duty, do you believe that, it is free to choose

any transaction or area of interest for audit?

Yes No Don't Know

6. Does a rule exist to ensure that auditors cannot audit operations for which they

previously had responsible?

Yes No Don't Know

Any thing you may want to say______________________________________________

28

II. Internal audit function human resource manageme nt 1. Do you think that the organization's audit department or divisions have;

i. A sufficient number of staff Yes No Don't Know

ii. Appropriately qualified staff Yes No Don't Know

iii. Staffs that have relevant skill and experience to risk identification and

planning methodology to deliver a high quality audit services

Yes No Don't know

2. Do you believe that:

i. Internal audits core competencies are directly related to its mission, role and

scope of work

Yes No Don't Know

ii. Internal audit's staffing strategy reflects its mission, role and required

competencies

Yes No Don't Know

iii. The human resource strategy is sufficiently flexible to respond to

changes in demand

Yes No Don't Know

3. Are salary levels sufficient to allow the organization to attract and

retain auditors with the requisite professional skills and

qualifications?

Yes No Don't Know

4. Training and quality assurance programs

i. Are in service trainings for auditors organized whenever required?

Yes No Don't Know

ii. Do quality assurance & improvement programs exist?

Yes No Don't Know

iii. Are audits sometimes subject to external review?

Yes No Don't Know

III Scope of internal audit 1. Are internal audits performed on the basis of annual plan?

Yes No Don't Know

29

2. Do the auditors receive a plan ("planning memorandum") for each

engagement, establishing its objectives and scope?

Yes No Don't Know

3. Are internal audit tasks defined on the basis of prior risk analysis?

Yes No Don't Know

4. Which of the following audits performed by your organizations? audit

function (please mark each boxes as much as it is applicable)

Assessing and promoting the adequacy of corporate governance

system/model control environment (Risk Management Systems &

Controls)

Evaluates projects/programs accomplishments (effectiveness)

Examine productivity (Efficiency)

Examine use of organizational resources (Economy)

Tests the organization's conformity with objective requirements,

standards or criteria (compliance)

Examine data reliability

Examine and asses' organizational policies, procedures and manuals

and recommend best practices.

Identify and monitor risks against achievement of organization's

strategy (Risk Management systems and controls)

Test proper recording of assets and expenditures, reliability of

financial information (Financial and regulatory audit)

Risk Analysis

5. Do auditors systematically review the risk management process?

Yes No Don't Know

6. Examining Internal Control Systems

(Please ark the corresponding box for the audit activity applicable to your

audit department)

30

Which of the following Audit activities

performed by your audit function?

Yes

No

Don't

Know

No Answer

Compliance with law & regulations

Checking Budget implementation

Evaluating Keeping of accounting records

(mistakes, delays, etc)

Evaluating management’s Efforts to the

recovery of receivables, taxes & other

collectables

Assessing Reliability & soundness of

financial information

Protection of assets

Wastage of resources (human, financial &

physical)

Under performance

Unethical behavior

Fraud detection

7. Internal performance (or added value) audits An internal performance audit must make it possible to verify that the

systems and procedures established contribute to the achievement of

objectives and economic use of the organization’s resources.

7.1 Are procedures for setting priorities concerning the use of budgetary

resources subject to a specific review?

Yes No Don't Know No Answer

7.2 Precise determination of the anticipated results of a programme or a

specific measure is necessary to enable assessment of whether those

results have been achieved. As a rule and practically, do the

auditors concern themselves with this matter?


31

7.3 Does the audit cover the relevance of the results assessment criteria

established by management


8. Advisory role of internal audit function 1. Do internal audit task provide management with advice on means of

reducing cost and improving efficiency an00d effectiveness, etc?

Yes No Don't Know

2. If yes please thick from the following possible advisory roles of the internal

audit to management applicable to your organization

Good Governance

Accountability

Ethical practices & anticorruption programs

Effective risk assessment and management

Designing and implementing internal control system.

Sound business process (e.g. reengineering)

It/Is development, acquisition and operation

Project Management

Program evaluation

Other areas if any ______________________________________________________

IV Existence of formal mandate/Approval Audit Chart er/ 1. Audit activities, power & duties, functional and administrative lines, etc of the

internal audit are established or defined

Yes No Don't Know

2. If yes in the form what type of documents?

Charter

Government law, if so can you refer me ______________________

In other forms of basic legal documents

3. If no, do you think that the organization needs to have it?

Yes No Don't Know

32

V. Unrestricted access to audit evidences 1. Are you allowed to access to all necessary information, records, employees, etc, to

come to an informed judgment in your audit work?

Fully allowed

Partially allowed

Not allowed

VI Resources Do you believe that there exists:

Utilization and availability of appropriate technology to enhance the

provision of internal audit services.

Adequate resources to meet CPD

Other required facilities

The ability to seek the assistance of experts during the audit process if

required (contracting for functional expertise in audits).

Other resource available ______________________________________________________

VII Leadership for audit function Do you believe that "the management/leader" for the audit functions in your

organization critical and effective to:

Recruit, retain and manage highly skilled staffs

Develop/decision annual audit plans on the basis of risk

Integrate and coordinate audit evaluation activities

Minimize constraints for maintaining independency that results from

institutional arrangements.

Develop and implement appropriate framework to measure internal audit

performance

Other thing to say __________________________________________________________

VIII Existence of audit committee 1. Does your organization have audit committee?

Yes No Don't Know

2. If no, do you think that it is necessary to have it?

Yes No Don't Know

33

3. If yes, do you believe that the audit committee has right mix to knowledge,

experience, and representation of major stockholders (the public)

Yes No Don't Know

Any thing to say _____________________________________________________________

IX Stockholder's support Do you believe that the audit function has got sufficient support from the following

stockholders (mark one or more as applicable)

Obtain support from senior government (e.g. from Ministry office,

commissioners, etc)

Obtain support from Board

Obtain support from Audit Committee

Obtain cooperation from executive managements/officials

Obtain sufficient support from other staffs

Do you have strong to say____________________________________________________.

X Professional audit standards 1. Do you conduct audit activities in accordance with recognized standards (e.g.

IIA, etc)

Yes No Don't Know

2. If "yes" which standard?

________________________________________________________________________

3. If "No" what is your reference to conduct auditing activities?

XI Implementation of recommendations 1. Do you feel that corrective measures are usually taken as a result of

weaknesses noted by the internal audit Department?

Yes No Don't Know

2. Do you believe that, the head (CAE) of internal audit monitor and follow- up

action taken by management to recommendations made by the audit

function?

Yes No Don't Know

3. If "yes", how are such actions and its results monitored and assessed?

_______________________________________________________________________

internal audit & corporate governance

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