Last week, the Institute of Internal Auditors Local Chapter held a two-day workshop/seminar under the theme, “Transparent Governance (Accountability for Public Funds; Internal Audit Impact in Financial Integrity). The facilitator was Ms. Claire Gomez-Miller, instructor from the Institute of Internal Auditors and a member of the Institute of Chartered Accountants of Trinidad and Tobago. I was asked to give the opening remarks, and the following are the main points of my presentation:
The theme of the workshop/seminar is highly relevant to the situation we are faced with today and is yet another timely remainder of the need for us to embrace all the tenets of good governance, transparency and greater accountability. The workshop/seminar was taking place at a time when the new Administration is putting in place mechanisms for an organized system of internal auditing, especially at large Ministries and Departments.
In my last report to Parliament, I wrote the following in relation to internal auditing in government:
The inadequacy of staffing at the various Ministries/Departments/Regions, the lack of suitably qualified and trained personnel and the absence of internal audit departments in large ministries continued to militate against an effective system of internal control and have contributed significantly over the years to the deterioration in financial management at both the ministerial and central levels.
That was in 2004. Since then, successive Auditor General’s reports continue to uncover significant deficiencies in systems and procedures at several Ministries/Departments. Although the situation has not improved, reports subsequent to 2005 were devoid of any commentary on the need to have in place strong and effective internal audit services, especially in large ministries and departments. There was therefore no pressure in recent years to have such a fundamental and well-established control mechanism in place to protect State assets and other resources and to minimize the extent of mismanagement, fraud and other forms of irregularities.
Internal controls and the internal audit
Internal controls are those systems and procedures in place, indeed the whole range of controls, financial and otherwise, designed: (a) to ensure the orderly conduct of the operations of the organization; (b) to safeguard its assets; (c) to secure the accuracy and reliability of its records; and (d) to minimize the extent to which mismanagement, fraud and other forms of irregularities are likely to take place. Most frauds and other forms of irregularities can be traced to deficiencies as well as breakdowns in internal controls.
Internal audit is an integral part of the internal control system. If properly performed, internal audit can assist organisations in ensuring that strong and effective internal controls are in place. In this way, internal auditors contribute in no small measure to the effective functioning of their organisations. Internal auditors carry out their work in a structured and professional way. Like external auditors, they take a risk-based approach to auditing and they derive their work programmes after due consultations with management as well as with the external auditors. Consultations with external auditors are necessary to avoid as far as possible duplication of efforts as well as gaps in audit coverage.
Reliance on the work of
internal auditors
The work of internal and external auditors complements each other, and there must be a high degree of cooperation and coordination between these two oversight bodies. External auditors are likely to place reliance on the work of Internal Audit if the Internal Auditors:
(a) Are technically and professionally competent, and the Internal Audit Service is fully staffed to effectively discharge its mandate;
(b) They follow standards of auditing promulgated by the IIA;
(c) Their roles and responsibilities are formalized in an Internal Audit Charter approved by an Audit Committee;
(d) Their reporting relationship is such that they enjoy a reasonable level of independence from Management. Most Internal Audit Services have a dual reporting relationship – administratively to the Head of Agency; and functionally to the Audit Committee;
(e) They develop annual work plans approved by the Audit Committee and carefully plan their individual audit assignments;
(f) They execute their field work under close supervision, and the results are reviewed at a senior level within the Internal Audit Service;
(g) They make use of the latest available information technologies, and possess IT auditing skills in the conduct of their audits;
(h) They develop their findings in a very structured and systematic manner, for example, the use of a template showing for each finding the criteria, condition, cause, effect, conclusion, and recommendation;
(i) Their reports are timely and reflective of quality;
(j) They maintain adequate working papers in support of their findings, conclusions and recommendations;
(k) Appropriate action is taken in respect of their findings and recommendations, and there is effective follow-up mechanisms to ensure that this is so; and
(l) They subject themselves to continuous internal quality reviews and periodic external assessments, and appropriate and timely action is taken to remedy deficiencies.
Internal audit and the
Government of Guyana
The Ministry of Finance has introduced a centralized system of internal auditing. This arrangement is similar to the inspectorate system that the Ministry had in place decades ago, and which had been evaluated to be of limited effect. This system could nevertheless work for the Ministry of Finance and for smaller ministries/departments. However, there is no reason why large Ministries, such as Public Works, Agriculture, Health and Education, cannot have their own internal audit departments.
Many of the scandals and acts of financial impropriety that are uncovered almost on a daily basis in respect of Government departments and agencies, could have been avoided had there been in place strong and effective internal audit services staffed by professional and competent auditors, with appropriate reporting lines. It would be unfortunate to ignore the role internal auditors can play in bringing about some degree of respectability in relation of our public finances. The Ministry of Finance’s initiative is therefore encouraging, and one hopes that the effort will not continue to be a cosmetic one to appease the international funding agencies that something is being done in relation this oversight mechanism. The larger Ministries, however, need to get their act going.
Internal audit and
the Auditor General
Because of the absence of strong and effective internal audits in government, many of the comments of the Auditor General are in the nature of internal audit findings. With limited staffing and time constraints to finalise his report to the National Assembly, this practice dissipates the Audit Office’s efforts to examine in detail more significant issues relating to the public accounts, such as:
- Action the Government could take to ensure that the Auditor General’s opinions on the 13 sets of financial statements comprising the public accounts receive a “clean bill of health”, instead of successive years of qualified opinions and disclaimers of opinion on these statements;
- The implementation of internationally recognized accounting standards as a replacement of the outmoded and outdated cash-based system of accounting that has been in existence since Colonial times. Here, I am referring to the International Public Sector Accounting Standards (IPAS) which many countries and international organisations have implemented or are in the process of doing so. The Fiscal Management and accountability (FMA) Act 2003 requires the Minister of Finance to promulgate accounting standards for the financial operations of government. Regrettably, this is yet to take place;
- Non-compliance with the fundamental requirement of Article 216 of the Constitution and the related sections of the FMA Act for all public revenues to be paid into the Consolidated Fund. Examples include: (a) the Lotto Funds held by the then Office of the President; and (b) the retention by NICIL of dividends received from public corporations and other entities as well as the sale of State assets; and
Non-compliance again with Article 217 of the Constitution requiring Parliament to approve of all public expenditure. Again, we can cite the use of the Lotto funds; and the use of funds retained by NICIL to meet the construction cost of the Marriott Hotel and to a lesser extent the Berbice River Bridge and the aborted Amaila Falls Hydro Project, not to mention several cross-transfers among State institutions.
The FMA Act and the Audit Act
The IIA workshop/seminar would be discussing FMA Act and the Audit Act. The FMA Act is good legislation on public finance. However, like several of the financial management reform initiatives, there has not been the desired level of compliance.
Indeed, one gets the impression that these initiatives were not voluntary acts on our part but rather conditionalities of international financial institutions for accessing loans, grants and other forms of technical assistance. One hopes that the new Administration will enthusiastically embrace these initiatives in order to bring about the much-needed improvements in governance, transparency and accountability.
The FMA Act requires the Head of a budget agency to maintain an effective internal audit capability within the budget agency.
Some Ministries/Departments have a field audit system in place to carry out mainly spot checks but this is hardly any substitute for an organized system of internal audit.
As regards the Audit Act 2004, after decades of struggle, we now have legislation, as well as constitutional amendments, that supports our thrust to have in place a Supreme Audit Institution that is intended to be “the foremost institution of the state in promoting good governance, including openness, transparency and improved public accountability through the execution of high quality audits and reporting to the highest level of the State”. We were once there but there have been slippages over the last ten years.
The Audit Office is but a shadow of its former self. History will record how the efforts to have a credible, strong and effective legislative audit servicing the public interest, have been undermined through political maneuverings to make the Audit Office a subservient, pliant and malleable tool of the political directorate. In particular, the qualification requirements for the Auditor General were removed from the final legislation, and there has been the insertion of a section allowing the Minister to arrange for another audit to be carried out by an auditor other than the Auditor General.
This was a reaction to the Dolphin Scandal of 2004, the aftermath of which is public knowledge. In the public interest, the time has come to retrieve lost ground, whatever it takes.
