Public Administration Reform in Latvia

1
Public Administration Reform in Latvia

• Internal audit development

2
Introduction

• V. Andrejeva
• State secretary, Ministry of Finance

3
How it began

• The project began in February 1999
• February 9, 1999 - the Ministry of Finance is
  assigned responsibility for the coordination and
  development of internal audit in the central
  government
• April 1999 - with the assistance of Phare
  experts, Cabinet of Minister regulations are
  developed.
• October 5, 1999 - regulations are approved
• Regulations about Internal Audit
• Regulations about the Internal Audit Council

4
Project components
Development of legal foundation
Training and development development of training
strategy and certification models
Internal audit
Methodology
Improvement and
sustainability of IA units in the
ministries
5
The role of the Ministry of Finance

• Dace Nulle, Ministry of FinanceInternal audit
  department director

6
Reference materials

• Internal audit handbook
• Risk assessment methodology
• Seminar about strategic and annual audit plans
• Peer reviews
• IT solutions
• Recommendaions database
• Time tracking system
• Monthly auditor meetings

• United methodology for public administration
• United approach - comparable, easily understood
• Regular evaluation and timely identification of
  gaps
• Improved effeciency
• Networking

7
Reporting procedures

• Standarta Iekeja audita zinojums
• ministrija
• Iekeja audita zinojums, Reg. nr. xx/xx/xx
• 1 Ievads
• 1.1 Sistemas audits ............................
  ............. tika veikts 2000 gada junija.
• 1.2 Audita galvenais merkis bija
  .......................
• i audita veikanai bija paredzetas kopa xx
  audita dienas ......................
• 1.3 Audita nosleguma notika tikanas ar
  ...................... , lai parrunatu audita
  konstatetos faktus un vienotos par audita
  rekomendacijam un ar to saistito darbibas planu.
  Darbibas plana kopsavilkums ievietots A
  pielikuma.
• 2 Kopsavilkums
• 2.1 Audita rezultati pau parliecibu, ka sistema
  ir pietiekoa kontrole, lai sistema varetu
  sasniegt izvirzitos merkus. Audita parbaudes
  apliecinaja, ka sistema tiek ieverots un vadiba
  var but parliecinata, ka sistema darbojas ka
  paredzets.
• 3 Iekejas kontroles novertejums
• 4 Audita parbaudes rezultati
• 5 Audita rekomendacijas

8
Communication flows
9
Building blocks for the future
Training and certification strategy
Recommended law on internal audit
Communication procedures
IA in local government
IT audit in Latvia
Joint audits
IA in Saeima
Jan
Feb
Mar
Apr
May
Jun
Jul
10
Phare project ends, but MoF work continues
Ministry of Finance decrees
Recommendations database
IA Handbook - next edition
Peer review methodology
Joint audit procedures
Reporting procedures
Communication flow
Aug
Sep
Oct
Nov
Dec
11
Development of the internal audit function in
Latvia

• Peteris Libietis, Ministry of AgricultureInterna
  l audit department director

12
The development of internal audit

• The Ministries received practical assistance in
  auditing functions
• Each ministry completed an audit with the
  guidance of Phare expert

13
DICE - the foundation of the audit process

• Internal control evaluation
• Examples from real audits are accessible through
  the Ministry of Finance for use in the audit
  process
• Phare project developed 6 additional examples

System
Control objective
14
Internal audit in the Ministry of Agriculture

• Audit about the Ministry of Agriculture real
  estate management and service provision
• Defined the system objectives

15
The audit process
System objective
3 control objectives
Audit scope
Risks
Control evaluation
Actual controls
DICE
16
Benefits

• In the ministry
• Improved, well-structured system
• Quality consultations
• Assurance about the role of internal audit
• For the internal auditors
• Completed audit within planned timeframe
• Use of audit terminology
• Improved awareness of primary risk factors
• Distinguish critical aspects from those less
  important
• Received and used reference materials about
  internal control mechanisms

17
At the conclusion of the audit

• Final evaluation
• Conclusions about elimination or reduction of
  risk, whether or not existing risks are
  acceptable
• Seminar for all auditors in the ministry
• Discussed development of DICE based on practical
  experience from the audit

18
Auditing of National and foreign funds

• Developed the audit methodology with auditors
  from the Minstry of Agriculture, Holland
• Lists of paying agency accreditation criteria
• Developed proposals and a programme for agency
  preaccreditaion self-assessment
• Developed guidance for the development of an
  accreditation criteria handbook

19
Expert recommendations

• Develop a handbook of detailed accreditation
  criteria
• Determine which are the most critical
  accreditation criteria based on the 1663
  directive and EC finance documents
• Ensure knowledge transfer between MoF, LAD, MoAg
  about criteria that are required for full,
  partial, and acceptable levels of accreditation
• Obtain the EC opinion about the handbook
• Evaluate the paying agencies through
  self-assessment

20
Joint audits

• Jolanta Ozola,Ministry of Transport
• Internal audit department head

21
Joint audit

• Programmes that are partially or fully financed
  by the EC are internally audited via joint
  audits, which are led by the appropriate
  ministrys head of internal audit and which
  involve Ministry of Finance internal audit unit
  staff.
• Cabinet of Ministers regulation Nr. 342
  Regulation on Internal audit, approved October
  5, 1999

22
Joint audits completed through July 2000

• Project management (payments)
• Ministry of Transport SM-15A/D/E-00/9
• Proposal and competition material preparation,
  competition oversight and contract signing
• Ministry of Transport SM-15B-00/4
• Project initiation, structure
• Ministry of Environment VARAM-15A-00/7
• Fund management
• State Treasury VK-15C-00/3

23
Challenges in the initial joint audits

• Insufficient knowledge about the systems to be
  audited
• Coordination problems, which initially took more
  time than planned
• Insufficient understanding about division of
  roles and responsibilities between the audited
  ministry and the Ministry of Finance

24
Accomplishments

• Development of contacts
• Knowledge transfer
• MoF has access to more information about the PIA
  work practices
• Development of critical, well founded, and
  substantial recommendations about essential
  improvements in the PIA internal control system
• Clarification about status
• Division of responsibilities
• Accounting improvements

25
Phare expert input

• Consultations during the audits
• Development of National fund joint audit
  guidelines
• Development of Management and control system
  audit handbook
• Flow charts
• System descriptions
• Detailed internal controle evaluation
  descriptions
• Audit programmes
• Handbooks will be issued to all PIA

26
What next?

• Adaptation of methodology to each ministry
• adaptation of cooperation mechanisms
• manage roles and responsibilites, thus reducing
  risks such as
• unpredictable audit durations
• only one partys involvement during the audit
• Improvement of auditor qualifications, including
  foreign languages
• Improvement of joint audit success indicators and
  quality of recommendations - in order to improve
  the PIA effectivity

27
A look to the future

• High quality, professional joint audits will be
  critical in the future, because some of the main
  EU requirements are
• to demonstrate effective internal controls, that
  include an independent audit function
• EC regulations Nr. 1266/1999
• must ensure acceptable internal and external
  financial controls in compliance with
  internationally accepted audit standards
• SAPARD programme regulations Nr. 1268/99, and
  ISPA fund regulations Nr. 1267/99 attachment 3,
  paragraph 4

28
Training and development

• Aija Rieba,Ministry of Welfare
• Internal audit department director

29
Training and seminars
National fund audits
Jul 31
Evaluation and reporting seminar
Jul 25
Jul 19
Jun 1
Cooperation with State Audit Office
May 22-26
Management training
May 17
Apr 26-27
Internal audit basics
Apr 3-7
Training of trainers
Mar 27-29
Development of DICE
Feb 7-11
Internal audit basics
January 1, 2000
Internal audit basics
30
Participants in courses and seminars
80
IA basics
90
Cooperation with State Audit Office
45
Development of DICE
7
Training of trainers
31
Management training
68
Evaluation and reporting seminar
20
National fund audits
TOTAL 341
31
Follow up activities in the future

• Implementation of the training strategy
• Certified local lecturers, foreign trainers
• 3 levels of training courses
• Implementation of the certification model
• Theoretical and practical testing
• In the longer term, integration of the
  certification model with the Institute of
  Internal Auditors
• Auditor specialization
• Information technology (IT) audits
• Quality audits

32
Benefits and deltas

• Benefits
• At Birini - a precise and well-prepared training
  course
• I could still concentrate at 22.00 -
  professionalism by the organizers!
• Not just training, but living together for two
  days (perfect seminar length) - that great!
• Seminar with the State Audit Office - personal
  contacts

• Deltas
• Birini was at the top, nothing could have been
  different!
• The seminar could have been less theoretical and
  more based in reality

33
Benefits and deltas

• Benefits
• Evaluation and reporting seminar - was well
  organized. Could ask lots of questions.
• Huge input from many qualified people - proof
  of the importance of this project

• Deltas
• A similar seminar about investigation techniques
  
• Perhaps the views of external Phare experts could
  be more well-rounded?

34
Benefits and deltas

• Benefits
• Training of trainers certification.
• Networking - exchange of ideas and experiences.
• After Keiths courses - desire to work with the
  IIA opportunity to meet other auditors

• Deltas
• We decided to postpone certain topics until
  tomorrow, but tomorrow never came
• We would like another 2-day seminar like
  Birini...

35
Benefits

• We have gained a lot in the project - knowledge
  and new colleagues
• You cant return the internal audit genie back in
  the bottle!

36
Internal Control Environment

• Ilga Berzkalns,Phare project local expert

37
Internal control

• Internal Control is a process designed to provide
  reasonable assurance concerning the achievement
  of objectives in the following categories
• effectiveness and efficiency of operations
• reliability of financial reporting
• compliance with applicable laws and regulations

38
Internal control

• It is carried out by people at every level of an
  organisation, but is the responsibility of
  management
• Effective internal control helps an organisation
  achieve its operational, financial and compliance
  objectives
• Internal control can provide only reasonable, not
  absolute assurance concerning the achievement of
  an organisations objectives

39
How to implement an internal control system?

• During the Phare project we have created
• IKS handbook -
• a customizable system of tools and techniques for
  managing internal controls
• Internal control training modules
• Recommendations about changes to the public
  annual report instructions, which include a
  statement of assurance about internal controls

40
Recommendations for the future

• Organize discussion groups in each ministry about
  internal control
• Invite internal auditors
• School of Public Administration
• In the autumn, present the internal control
  modules as part of basic management training
  courses
• Secretariat of the Minister for Special
  Assignments on Public Reform
• Follow through the recommendations about internal
  control statement of assurance

41
Comments to Internal Audit

• Bernard SordetEU delegation

42
A look at the future

• Phil TarlingEU expert

43
The future is bright

• Achievements
• 100 Internal Auditors trained to the basic
  standard
• Understanding of Risk its management
• Guidance for Managers
• 55 audits completed or in progress
• Active Internal Audit in all Ministries except 2
• 49 Subordinate Institutions with Internal Audit
• 8 Latvian trainers certified

44
The future is bright

• Reports published
• IT Audit in Latvia
• Time Recording and Recommendation Database system
• Training Strategy for Internal Audit
• Procedures for Joint Audits
• Guidance on the audit of the National Fund
• Internal Control Environment Handbook
• Continuous Improvement Mechanism for Public
  Administration

45
The future is bright

• Reports published (cont.)
• Internal Audit in the Saeima
• Guidance on the Internal Audit Annual Report
• Internal Audit Peer Review
• Internal Audit Communication Procedures
• The Latvian Subsidy system

46
The future is bright

• Started on the road to modern systems audit
• Not your job to provide authorisation or
  financial control
• Your job is to make sure the control is there
• That the risk is identified
• That the control is specified
• That others are doing it

47
What do you need to do

• Make your recommendations relevant
• Remember segregation of functions
• Look at what happens, not what should
• Listen

48
Future needs from you

• Professional understanding
• Professional qualification
• Professional attitude

49
Future needs from the government

• Support with training and education
• Support with independence
• Action for change

50
The Next Steps

• Establish the Internal Audit Council
• Implement the Training Strategy
• Establish the Certification Scheme
• Educate Management in their Internal Control
  responsibilities
• Review the position regarding IT Audit agree
  the way forward
• Review the position of one person audit teams

51
The Next Steps

• The Base is well established
• Now we need to build on it

52
Future contacts

• For further information about Internal Audit in
  Latvia, contact
• Ministry of Finance
• Dace Nulle, dace.nulle_at_fm.gov.lv
• Institute of Internal Auditors
• USA, www.theiia.org
• UK, www.iia.org.uk
• Latvia, Maris Graudin, marisg_at_hbl.lv
• Phare experts
• Phil Tarling, PTarling_at_burnettswayne.co.uk
• John Davies, john_at_bsinternalaudit.co.uk