Quality assessment of internal audit activities performed on a periodical

basis

Nikolina Bibić,Ministry of Finance,

Central Harmonization UnitRepublic of Croatia

Contents:

1. Introduction

1.1. Legal basis

1.2. Overview of established internal audit units in the public sector of the Republic of Croatia

2. Development of the quality assessment model Model 1 Model 2 Model 3

3. Conclusion

1.1. Legal basis

Public Internal Financial Control Law

(2006)

Rulebook on Internal audit of Budget Users

(2008 and 2013)

CHU

Service for Methodology and Standards

Service for Coordination of Training and Quality Control

Service for International Activities

1.2. Overview of established internal audit units in the public sector of the Republic of Croatia

BUDGET USERS

TOTALNUMBER

OFENTITIESWITH AN

OBLIGATIONFOR

ESTABLISHING

INTERNALAUDIT UNIT

NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT

(as of 31.12.)

2012.

%OF TOTAL

NUMBER OFENTITIES THAT

HAVEESTABLISHEDTHE INTERNAL

AUDIT UNIT

2005. 2006. 2007. 2008. 2009. 2010. 2011.

Central level

148 21 31 32 42 54 72 79 10067,56

Local level 148 1 7 40 43 56 59 73 7450

Total 296 22 38 72 85 110 131 152 174 58,78

2. Development of the quality assessment model

Model Year Document Title

1 2012. Methodological Guidelines for Conducting Periodic Quality Assessment of Internal Audit Activities

2 2013. Instruction for Conducting Periodic Quality Assessment of Internal Audit Activities (Version 1.0)

3 2014. Instruction for Conducting Periodic Quality Assessment of Internal Audit Activities (Version 2.0)

Model 1

Methodological Guidelines for Conducting Periodic Quality Assessment of Internal Audit Activities

(2012)

• Organizatioanal position ofthe Internal Audit Unit • Staff•Methodology of work•Periodic reporting• Working papers

Model 2

Instruction for Conducting Periodic Quality

Assessment of Internal Audit Activities (Version

2.0)2013.

Assessment areas1. ESTABLISHMENT OF INTERNAL AUDIT

2. INTERNAL AUDITORS

3. CONTINUING PROFESSIONAL DEVELOPMENT

4. INTERNAL AUDIT MANAGEMENT

5. INTERNAL AUDIT PLANNING

6. WORKING PAPERS

7. CONDUCTING INTERNAL AUDIT

8. RECOMMENDATIONS MONITORING

9. REPORTING

10. QUALITY ASSURANCE AND IMPROVEMENT PROGRAM

11. IRREGULARITIES AND FRAUD

• Quality assessment performed on the basis of Annual Plan • Quality assessment performed by employees of the Central

Harmonization Unit (team of two)• Minister of Finance issues a decision on appointment • Signing a Declaration of Confidentiality and Impartiality • Checks take about 7-10 days (2-3 days of field work)

Model 2

1. Survey for internal auditors

2. Anonymous survey

1. Interview with management

2. Anonymous survey for audited entities

Checklists for all assessment areas

(11)

Percentage of compliance

Assessment of compliance

Description of assessment

Opinion on compliance

≤50% 0 Non-compliant ....non-compliances impair the ability to perform internal audits

51% - 75% 1 Partially compliant

potential for significant improvements

76% – 99% 2 Substantially compliant

potential for minor improvements

100 % 3 Fully compliant All requirements are fulfilled

INTERNAL AUDITORS

HEAD OF INTERNAL AUDIT UNIT

MANAGEMENT

Reporting process

Content of the report

• Introduction Purpose and scope of the assessment Legal framework for conducting the assessment Persons who conducted the assessment Place and period in which the assessment is conducted Quality assessment methodology

• Assessment results (by areas of assessment) Findings, assessments, opinions, recommendations

• Conclusions• Annexes

Response of the head of internal audit unit to the draft report

Reporting process

Draft Report on Conducted Assessment

Response of the head of Internal Audit Unit

Final Report on Conducted Assessment

Within 15 working days after the assessment

Within 7 working days after receipt of the draft report

Within 5 working days after receipt of the response

Head of Internal

Audit Unit

CHU

Head of Institution

Head of Internal Audit Unit

Assessment results

Model 2 – identified weaknesses

• Focus on assessment of compliance, not on quality

• All questions in the checklist are of equal importance

• Questions were repeated by areas (11)

• Technical questions – not related to quality assessment

• The report is too detailed

• The conclusion did not provide a general / overall assessment

3. Model

Instruction for Conducting Periodic Quality

Assessment of Internal Audit Activities (Version

2.0)2014.

Assessment areas

1. ESTABLISHMENT OF INTERNAL AUDIT

2. INTERNAL AUDITORS

3. INTERNAL AUDIT MANAGEMENT

4. STRATEGIC AND ANNUAL PLAN OF INTERNAL AUDIT

5. PLANNING OF INDIVIDUAL AUDITS

6. PERFORMANCE OF INDIVIDUAL AUDITS

7. REPORTING ON INDIVIDUAL AUDITS

8. QUALITY ASSURANCE AND IMPROVEMENT PROGRAM

1. Survey for internal auditors

2. Anonymous survey

1. Interview with management

2. Anonymous survey for audited entities

Checklists for all assessment areas

(8)

Questions related to Level 1

Questions related to Level 2

Description of assessment

Opinion

Non-compliant ....non-compliances impair the ability to perform internal audits

Partially compliant potential for significant improvements

Substantially compliant

potential for minor improvements

Fully compliant All requrements are fulflled

INTERNAL AUDITORS

HEAD OF INTERNAL AUDIT UNIT

MANAGEMENT

Reporting process

Content of the report

• Introduction Purpose and scope of assessment Methodology used for quality assessment

• Opinion about performed assessment (by areas of assessment) Findings, assessment, opinion, recommendations

• Conclusion Tabular presentation of proposed improvements (addressed to the head

of budget user) Tabular presentation of examined areas and quality level (addressed to

the head of internal audit unit) Comprehensive opinion (based on individual assessments by areas)

Model 3

• The implementation of this quality assessment model will begin from march 2014

• According to the Annual Plan, quality assessment of 31 Internal Audit Units / budget users shall be performed in 2014

• Selection criteria:– Internal Audit Unit - established more than four years ago

– Head of Internal Audit - appointed

– The amount of budget funding

– A user of EU funds

3. Conclusion

Quality assessment has two parts:

1. compliance of the internal audit function and

2. functional efficiency assessment

Thank you for your attention!