Risk Based Auditing in the Public Sector

1
Risk Based Auditing in the Public Sector

• The Kenya Experiment
• ICGFM
• Miami Conference
• May 2006

2
Risk-Based Audit Concept

• A powerful audit methodology
• Easily understood
• Not so easily practiced
• Useful accountability tool
• Best practice

3
The Kenya Experiment

• Partnership with the IIA
• One pilot country - Kenya
• Two pilot ministries
• Phased approach
• Decision points
• Agreed follow-through plan

4
The Phased Approach
Internal Audit Capacity Development in the Public
Sector

• Phase 1 - Enlightenment
• Phase 2 - Education
• Phase 3 - Empowerment

5
Phase 1 - Enlightenment

• Principles Adopted
• Aim for the Top
• Its more about Management than IA
• Partner with the Profession
• Deliver one Message
• Bank and IIA must demonstrate agreement
• Use media to attract a wider audience
• Identify a Leader
• - No success without local, credible IA
  leadership
• Involve the Client
• Manage Expectations

6
Phase 1 Enlightenment - Activities

• High Level Forum on RBA Approach
• Co-ordinate IAG/WB/IIA effort at a senior level
• Minister of Finance and PS Finance
  engaged and active
• Public invitation
• Media presence
• PS panel discussion

7
Phase 1 Enlightenment - Impact

• Minister of Finance decrees RBA Approach for
  all government
• PSs ask to be part of expanded pilot
• IAG credibility goes up
• Appetite for RBA increases in IAG
• IAG and IIA in national news
• Decision taken to proceed with Phase 2

8
Phase 2 - Education

• Principles Adopted
• Classroom Training minimized
• Keep interest level high
• Peer Group only
• - Add a sense of competitiveness
• Stakeholders included
• - Spread the message and the concept (i.e. CAG
  and Treasury)
• Emphasis on Hands-On training
• Maintain maximum participation
• Get hands dirty from the start
• Deliver a Product
• - Stretch the group (i.e. the product and the
  time constraint)
• Involve the pilot Clients
• - Engage them throughout

9
Phase 2 Education - Activities

• Classroom Training
• 2 day interactive workshop
• High expectations set up front
• Hands-On Learning
• Work done in both pilot Ministries
• Teamwork for 8 days (new for IAG)
• Engagement with senior management and PS (new for
  IAG)
• Products developed within time limit (new for
  IAG)
• Delivery
• - RBA Plan for 2 Ministries presented to PS
  (new for IAG)
• Management Input
• PS challenges/ RBA plan revised (new for IAG)
• IIA Workshops

10
Phase 2 Education - Impact

• Importance seen of
• Applying IIA Standards
• Working as a Team
• Engaging with PS
• Agreeing an Audit Plan with Management
• Value-add to PS
• Value of RBA rather than pre-audit
• Direct link of audit work to Management business
  objectives
• Need demonstrated for
• Nationwide audits especially for Health
• Linkage with Provincial auditors
• Ongoing, hands-on support and leadership from
  IAG
• Appreciation that RBA
• Forces a fundamental rethink of Audit
  activities
• Requires guts
• Is a cultural change
• Decision taken to proceed with Phase 3

11
Phase 3- Empowerment

• Principles Adopted
• Keep Pressure Up
• - Without it, there is quick reversion
• Support the Leadership
• - It is a lonely job
• Instill a sense of Pride
• - Value-added work inspires and energizes
• Maintain Oversight and Follow-up
• Mid-course corrections are normal
• Agreed actions need to be verified
• Develop the IA Profession
• - Work in tandem with the Profession locally
• Spread the Concept Cautiously
• - Demand builds up quickly and can overwhelm

12
Phase 3 Empowerment - Activities

• Review work to date team effort
• Reengage with Management
• Teams brought together again
• Audit Plans and initial audits reviewed
• Discuss what works and what does not
• Agree Follow-up Action
• Provide Training and Insight
• A mindset change is a process
• Counsel and Encourage the IAG
• It is a lonely job/ its not the only job
• What to do about buildup in demand for RBA
• Engage the Profession

13
Phase 3 Empowerment - Impact

• RB Audit Plans and audits start to emerge
• Permanent Secretaries begin to buy-in
• - Management required to engage with IAG team
• Auditors start feeling empowered
• Engaging now with top management
• Working in new spaces/places
• Dealing with real issues
• Realizing hidden potential

14
Initial Conclusions

• Demand for RBA greater than expected
• Govt. moving faster than expected
• Mindset is changing
• Auditors more focused on high risk issues
• Need for training greater than expected
• Auditors coming up with surprisingly useful
  results
• Development Banks starting to see benefit of
  focused RBA

15
Presenter and Consultant on the Kenya Experiment

• Graham Joscelyne CA(SA) CIA
• UHY Advisors, Inc.
• 1425 K Street, NW
• Washington DC 20005
• 202-296-2020
• gjoscelyne_at_uhy-us.com