Internal and external quality evaluation of internal audit in public sector in Ukraine Maxim Timokhin, Head of CHU, Public Financial Inspection, Ukraine 2 Contents of the methodology manual Internal quality evaluation External quality evaluation Annexes: - Criteria for internal and external quality evaluation of internal audit - Criteria for internal and external quality evaluation of internal audit - Risk-based CHU planning model relating to external quality evaluation of internal audit; - Risk-based CHU planning model relating to external quality evaluation of internal audit; - CHU employees roadmap to conduct external quality evaluation. - CHU employees roadmap to conduct external quality evaluation. 3 What is common between the internal and external quality evaluation? Implemented at two main levels: Level I continuous monitoring; Level I continuous monitoring; Level II regular quality evaluations. Level II regular quality evaluations. The same criteria are applied 4 Internal quality evaluation continuous monitoring Head of IA unit supervises the assignment Leader of the audit group supervises the assignment Head of the IA unit delegates powers Head of the IA unit is ALWAYS responsible for internal audit activities and internal quality evaluations _________________________________________________________________ Ways of monitoring and support to IA activities : Coordination/ approval of each following step in an assignment; Mandatory written conclusions; Controlling risks in an assignment; Regular consultations. 5 The process of internal quality evaluation determines : Blank form; List of questions; Organization and procedure; Evaluation system; Procedure for disputable matters; Implementation of results. 6 Basic criteria for internal and external quality evaluations: Organizational and legal framework, particularly: Links between managers; Links between managers; Status, structure and staffing of IA unit, its independence; Status, structure and staffing of IA unit, its independence; HR policy, particularly: Evaluation of internal environment for observance of requirements of the IA Code of Ethics; Evaluation of internal environment for observance of requirements of the IA Code of Ethics; Degree of maturity of the unit, stability of HR policy, degree of staffing; Degree of maturity of the unit, stability of HR policy, degree of staffing; Internal rules and procedures, particularly : Program for maintenance and improvement of IA quality; Program for maintenance and improvement of IA quality; Regulations of the current activities of the unit; Regulations of the current activities of the unit; Planning system and status of execution of plans, particularly: Making and approval of plans, introducing changes; Making and approval of plans, introducing changes; Status of execution of plans; Status of execution of plans; 1 2 1 2 1 2 D D1 D2 7 organizational and functional aspects for conduct of internal audits, particularly: adherence to requirements of laws and procedures relating to organization of internal audits; adherence to requirements of laws and procedures relating to organization of internal audits; efficiency of audit activities and quality of documentation of evidence; efficiency of audit activities and quality of documentation of evidence; effectiveness of conducted internal audits and implementation of results of audit research, particularly: review of effectiveness of conducted internal audits, including reliability of reports; review of effectiveness of conducted internal audits, including reliability of reports; Implementation of findings; Implementation of findings; Following / monitoring of implementation of audit recommendations; Following / monitoring of implementation of audit recommendations; Interaction between Ukraines Public Financial Inspection and the CHU, particularly: Improvement of shortages revealed by the CHU in the Ukraines Public Financial Inspection during the previous evaluation and implementation of recommendations; Improvement of shortages revealed by the CHU in the Ukraines Public Financial Inspection during the previous evaluation and implementation of recommendations; Interaction between the Ukraines Public Financial Inspection and the CHU related to implementation of IA function; Interaction between the Ukraines Public Financial Inspection and the CHU related to implementation of IA function; Objectiveness of IA internal quality evaluations: benchmarking the results of external evaluation with results of previous internal evaluations conducted during the studied period. benchmarking the results of external evaluation with results of previous internal evaluations conducted during the studied period. E E1 E2 F F1 F2 F3 G G1 G2 H H1 8 Criteria for internal and external evaluations of IA quality . Review of organizational and legal framework for IA unit A1: Interaction between the head of the IA unit with the head of the institution Criteria Yes/no (if necessary, provide a short explanation) Is the IA unit directly subordinate to the head of the institution? Is the head of the IA unit member of the board of the institution? Does the head of the IA unit receive timely information on all new organizational changes and other key issues related to the institution? 9 Findings of the review of legal and organizational framework for IA unit (1 + 2) Level 1: Initiation Level 2: Development Level 3: Activity Level 4: Maturity Level 5: Model Management of the institution shapes understanding of its role in ensuring internal control and internal audit in their domain The available unit and IA staffing is not able to ensure systematic internal audit in the domain and does not have any effect on the state of fiscal discipline in the institution. Management of the institution makes plans and some steps towards ensuring an environment for an efficient IA function. However, the available unit and IA staffing is able to implement just a few very narrow tasks and does not have any effect on the whole system. Top management have enabled an environment, which allows implementing IA function. At the same time, there is a number of organizational and functional shortcomings, which are obstacles to the full implementation and development. Top management is quite aware of the role of the IA service and is interested in receiving a contribution from IA for achieving objectives of the institution, for risk management and control at all levels. At the same time, the institution has some potential for development of IA function. IA is regarded by the management of the institution as a key instrument of financial control and management in this sector. The IA function ensures systematic and good- quality internal audit in the institution, and is recognized and effectively involved in strategic activities. Evidence 10 Implementation of findings of the study of organizational and legal framework for activities of the IA unit Recommended activities Who is in charge of implementation Deadline Expected results 11 Review of objectiveness in IA internal quality evaluations: findings (1) IA function is weak and invalid. No IA internal quality evaluations are conducted/ or, when conducted, they are of very poor quality and incomplete, so their results cannot be benchmarked; IA function is at the initial stage of development. IA internal quality evaluation is conducted, yet in majority cases an IA specialist is not yet fully capable to evaluate the quality of IA function objectively and correctly; IA function is active and developing, there seems to be a drive towards improving its quality. Internal quality evaluations, overall, are realistic and objective, and some deviations are identified only in a few aspects of activity; IA function is effective and efficient. IA internal quality evaluations show very good understanding of all aspects of IA and their objective evaluations, there are practically no deviations from the external evaluation. At the same time, conclusions on results of internal evaluations and recommendations behind the IA Quality Improvement Program require some additional work and some adjustments; IA function is so well developed that it does not need any external evaluation. Head of the IA unit is able to give his/her own objective IA internal evaluation, prepare findings and recommendations in order to ensure and improve quality of the IA unit activities. THANK YOU FOR YOUR ATTENTION! . 2012