Internal auditing in the public sector: a consultative forum in Nairobi, Kenya, shores up best practices for government audit professionals in developing nations

Internal Auditor, August, 2005 by Cecilia Nordin Van Gansberghe

FOR MOST OF ITS HISTORY, INTERNAL AUDITING served as a simple administrative procedure comprised mainly of checking documents, counting assets, and reporting on past events to various types of management. But in recent times, a combination of forces has led to a quiet revolution in the profession. Governments moving toward democracy must demonstrate accountability in the use of public money and efficiency in the delivery of services. Larger and more complex systems demand greater competency and professionalism from internal auditing, and scarce resources must be deployed more efficiently to minimize and manage risk. Moreover, technological advancement makes it possible to track and analyze data with continually increasing speed. A world that keeps turning ever faster makes it essential for governments to be well-advised by internal auditing.

Even so, the state of internal auditing in the public sector varies widely from nation to nation, and making the change to modern internal auditing can be a substantial undertaking. To make the transition from merely ensuring compliance with rules and regulations--the so-called "tick and flick" approach--to truly delivering added value requires more than just organizational changes. A massive shift in culture is required as well--especially in countries struggling with a less-than-robust environment for internal auditing. In many settings, staff is poorly paid and unmotivated, ethical standards are weak, and governance practices are ineffective. Additionally, many organizations lack support from senior management and regulatory bodies, and the internal audit function is often anything but independent.

Tackling these concerns was at the heart of the Consultative Forum on Internal Audit hosted by The World Bank and The Institute of Internal Auditors in Nairobi, Kenya, in March 2004. In its diagnostic work, The World Bank has carried out Country Financial Accountability Assessments for 27 countries in Africa, where internal audit challenges have been identified as cutting across the region. Forum participants identified the need for major changes in internal control and audit systems to improve public finance management, enhance service delivery, and take steps toward eradicating poverty.

ADVANCING THE PROFESSION

The forum brought together 52 stakeholders from Kenya, Uganda, Malawi, and Ethiopia to discuss and plan how to increase the role and image of internal auditing in their countries to make it more effective and professional. Participants represented a wide cross-section of stakeholders such as accountants, senior representatives of the ministries of finance and relevant line ministries, chairmen of public accounts committees of parliament, private sector representatives, academics, and internal audit practitioners.

Prior to the forum, the participants and relevant affiliates of The IIA had completed a survey on the current status and long-term outlook of internal auditing in their countries. The survey results show the strongest supporters of an effective internal audit function can be found among the accountability institutions (auditors general, accountants general), but also in the ministries of finance and line ministries. Many said that for internal auditing to be effective, it must be a completely independent group.

The survey participants saw much room for improvement in the internal audit functions in their countries. They noted a lack of qualified internal auditors, as well as insufficient opportunities for internal auditors to become qualified. Although there is a general awareness of internal audit standards among audit practitioners, for the most part these standards are not applied.

Respondents also indicated that most internal audit functions establish work programs at the beginning of the year based on internal analysis of the financial risks of the organization, but those work programs may be limited. The primary functions of internal auditing were identified as first to ensure compliance and second to check the accuracy of the transactions. Some internal auditors spend up to 75 percent of their time on pre-audits of transactions. In addition, internal auditing's recommendations are acted upon very differently: In some countries up to 75 percent of recommendations are implemented, while in others fewer than 25 percent result in changes.

Respondents stated that improvement in the effectiveness of internal auditing would increase the effectiveness of spending in both the public and private sectors. Additionally, they predict a shift to reviewing management procedures for improved efficiency and effectiveness, but they see that as a long-term change, over the course of 10 years.

During the forum, six main themes--perception and ownership, organization and governance framework, legislation, improved professionalism, a conceptual framework, and resources--were identified as crucial in building an effective internal audit function in the participating countries.

PERCEPTION AND OWNERSHIP The organization's leadership sets the tone by establishing governance, risk management, and control systems and consistently applying sanctions, forum participants agreed. The internal audit function assesses that these systems work effectively and efficiently, suggests improvements, and then evaluates their implementation. According to the participants, improvement needs to occur on two levels: Management needs to know what internal auditing can truly contribute, and internal auditing needs to become more professionally competent and focused on the organization's objectives. A more professional internal audit function will be able to assist management in decision-making, and thus will fill a more proactive and forward-looking role. It is seen as vital that the internal audit function establish priorities for effective and efficient service delivery. Management will then be able to view the internal audit function not as "nit-picking" and a burdensome over-head cost, but as truly adding value to the organization's objectives.