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Quality assessment of internal audit activities performed on a periodical basis

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Title: Quality assessment of internal audit activities performed on a periodical basis


1

Quality assessment of internal audit activities
performed on a periodical basis Nikolina
Bibic, Ministry of Finance, Central Harmonization
Unit Republic of Croatia
2
  • Contents
  • 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

3
1.1. Legal basis
Rulebook on Internal audit of Budget Users (2008
and 2013)
Public Internal Financial Control Law (2006)
CHU
Service for Methodology and Standards
Service for Coordination of Training and
Quality Control
Service for International Activities
4
1.2. Overview of established internal audit units
in the public sector of the Republic of Croatia
BUDGET USERS TOTAL NUMBER OF ENTITIES WITH AN OBLIGATION FOR ESTABLISHING INTERNAL AUDIT UNIT NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) NUMBER OF BUDGET USERS THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT (as of 31.12.) 2012. OF TOTAL NUMBER OF ENTITIES THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT
BUDGET USERS TOTAL NUMBER OF ENTITIES WITH AN OBLIGATION FOR ESTABLISHING INTERNAL AUDIT UNIT 2005. 2006. 2007. 2008. 2009. 2010. 2011. 2012. OF TOTAL NUMBER OF ENTITIES THAT HAVE ESTABLISHED THE INTERNAL AUDIT UNIT
Central level 148 21 31 32 42 54 72 79 100 67,56
Local level 148 1 7 40 43 56 59 73 74 50
Total 296 22 38 72 85 110 131 152 174 58,78
5
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)
6
Model 1
  • Organizatioanal position of
  • the Internal Audit Unit
  • Staff
  • Methodology of work
  • Periodic reporting
  • Working papers

Methodological Guidelines for Conducting Periodic
Quality Assessment of Internal Audit
Activities (2012)
7
Model 2
Assessment areas
1. 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
Instruction for Conducting Periodic Quality
Assessment of Internal Audit Activities (Version
2.0) 2013.
8
Model 2
  • 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)

9
Working papers Review of documents
Checklists for all assessment areas (11 checklists) Internal Audit Establishment Act Internal Organization Rulebook Internal Audit Charter Job description and position requirements / evidence demonstrating the fulfillment of requirements Evidence of continuing professional development Written procedures Strategic and annual plan of internal audit (planning methodology) Conducting internal audits / internal audit methodology (on x/y samples of completed internal audits) Working papers (permanent audit files /audit assignment files) Documenting the status of recommendations Reporting to management (annual, semi-annual, quarterly reports) Quality assurance program (ongoing monitoring and periodic reviews)
Interviews with internal auditors Internal Audit Establishment Act Internal Organization Rulebook Internal Audit Charter Job description and position requirements / evidence demonstrating the fulfillment of requirements Evidence of continuing professional development Written procedures Strategic and annual plan of internal audit (planning methodology) Conducting internal audits / internal audit methodology (on x/y samples of completed internal audits) Working papers (permanent audit files /audit assignment files) Documenting the status of recommendations Reporting to management (annual, semi-annual, quarterly reports) Quality assurance program (ongoing monitoring and periodic reviews)
Anonymous survey on satisfaction level with internal audit management (conducted among internal auditors) Internal Audit Establishment Act Internal Organization Rulebook Internal Audit Charter Job description and position requirements / evidence demonstrating the fulfillment of requirements Evidence of continuing professional development Written procedures Strategic and annual plan of internal audit (planning methodology) Conducting internal audits / internal audit methodology (on x/y samples of completed internal audits) Working papers (permanent audit files /audit assignment files) Documenting the status of recommendations Reporting to management (annual, semi-annual, quarterly reports) Quality assurance program (ongoing monitoring and periodic reviews)
Interview with management Internal Audit Establishment Act Internal Organization Rulebook Internal Audit Charter Job description and position requirements / evidence demonstrating the fulfillment of requirements Evidence of continuing professional development Written procedures Strategic and annual plan of internal audit (planning methodology) Conducting internal audits / internal audit methodology (on x/y samples of completed internal audits) Working papers (permanent audit files /audit assignment files) Documenting the status of recommendations Reporting to management (annual, semi-annual, quarterly reports) Quality assurance program (ongoing monitoring and periodic reviews)
Anonymous survey on satisfaction level with the work of internal audit (conducted among audited entities) Internal Audit Establishment Act Internal Organization Rulebook Internal Audit Charter Job description and position requirements / evidence demonstrating the fulfillment of requirements Evidence of continuing professional development Written procedures Strategic and annual plan of internal audit (planning methodology) Conducting internal audits / internal audit methodology (on x/y samples of completed internal audits) Working papers (permanent audit files /audit assignment files) Documenting the status of recommendations Reporting to management (annual, semi-annual, quarterly reports) Quality assurance program (ongoing monitoring and periodic reviews)
10
HEAD OF INTERNAL AUDIT UNIT
INTERNAL AUDITORS
MANAGEMENT
Checklists for all assessment areas (11)
  • Survey for internal auditors
  • Anonymous survey
  • Interview with management
  • Anonymous survey for audited entities

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
11
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

12
Reporting process
Draft Report on Conducted Assessment
Within 15 working days after the assessment
Head of Internal Audit Unit
Response of the head of Internal Audit Unit
Within 7 working days after receipt of the draft
report
CHU
Final Report on Conducted Assessment
Within 5 working days after receipt of the
response
Head of Institution
Head of Internal Audit Unit
13
Assessment results
14
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

15
3. Model
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
Instruction for Conducting Periodic Quality
Assessment of Internal Audit Activities (Version
2.0) 2014.
16
HEAD OF INTERNAL AUDIT UNIT
INTERNAL AUDITORS
MANAGEMENT
Checklists for all assessment areas (8)
  • Survey for internal auditors
  • Anonymous survey
  1. Interview with management
  2. Anonymous survey for audited entities

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
17
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)

18
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

19
3. Conclusion
  • Quality assessment has two parts
  • 1. compliance of the internal audit function and
  • 2. functional efficiency assessment

20
  • Thank you for your attention!
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