Reforming the audit function: a Dutch government audit group redefines its role in the organization and broadens the department's sphere of influence

Internal Auditor, April, 2006 by Peter Pennekamp, Peter J.J. Vlasveld

OVER THE PAST SEVERAL YEARS, the Netherlands central government audit function has undergone a significant transformation. The administration's 12 ministries, which operate within the Dutch government's 125 billion euro (US $149 billion) budget, each have their own audit department ranging from 35 to 170 full-time employees. Once financially oriented and traditional in nature, the departments recently adopted a modern approach to internal auditing and broadened the scope of their activities to include operational and information technology (IT) reviews.

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The changes were prompted by a significant policy shift across the central government. In the late 1990s, the Dutch Parliament began requiring central government agencies to report not only on their financial performance, but also on the results of policy and the effectiveness of government activities. The audit function embarked on its modernization initiative to accommodate this dramatic shift, and to prepare auditors for a new era of value-added practice.

THE PROCESS BEGINS

In 2001, the Ministry of Finance issued a report titled, "Implementation of Central Government Audit Function Quality Plan," which was drafted by a team of experts and advisers from both national universities and the government's Central Court of Audit. The group was asked to provide suggestions for better aligning audit activities with the government's new reporting requirements. Team members helped develop goal-setting procedures and reports, as well as financial data.

Based on the report, the Dutch government approved a formal Quality Plan in 2002. The plan's primary goal was to improve the performance of central government audit departments via four main objectives:

* Providing ministerial audit committees with active, managerial responsibility for the entire audit function, from financial audits to reviews of operational management and policy implementation.

* Investigating the possibility of forming interministerial pools of audit specialists.

* Expanding the scope of ministry audit departments to include additional activities, such as operational and IT auditing, and granting these activities equal status with financial auditing.

* Providing additional investments in human resource management, to support the audit departments' expanded scope.

The plan called for each of these objectives to be accomplished by the end of 2004. It also required a full-fledged, multifunctional audit department to be operational at every ministry by this same time. In 2002, the government established a new project team composed of highly qualified civil servants to support the individual ministries, particularly their audit departments, during implementation of the proposed changes. This support took a variety of forms, including those listed in "Project Team Support" on this page.

The team issued a final report on the project at the end of 2004. Many of the Quality Plan's objectives have been achieved, though some still require additional, ongoing attention.

AUDIT COMMITTEES Dutch central government audit committees differ from those in the country's private sector. At present, they function more like operational management committees than independent monitoring agencies.

Since the Quality Plan was implemented, almost all of the central government's audit committees have expanded the scope of their activities to encompass the entire audit function, including investigations of operational management. In addition, the project team, in cooperation with its university members, developed a short refresher course to help reacquaint committee members with some of their less-routine duties. The course also clarified the role of the committee chair and detailed performance expectations for each of the committee's members.

In its final report, the project team provided several recommendations aimed at improving audit committee effectiveness. One of them was to bring in one or more outside members with specific expertise and relevant experience. Experts and independent outsiders with an affinity for public administration force senior officials to tighten up their management style. Moreover, these specialists provide support for members of political management (ministers and junior ministers) who are not in a position to supervise day-to-day ministry activities but are nonetheless politically accountable for them. During the past few years, several ministries have already experienced positive results with outside committee members, and others have recently recruited outsiders or are planning to do so in the near future.

AUDIT SPECIALTIES The Quality Plan project team, in conjunction with an inter-ministerial committee, conducted a study of ministerial audit departments that identified several specialties within the departments, including IT, forensic, and environmental auditing. In most cases, IT audit expertise was already clustered with an electronic data processing audit pool within the central government. The pool provides IT audit services to all of the ministries, and it has become instrumental to improved cooperation.