Workshop: Internal Environment

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Workshop Internal Environment

• held by Elisabeth Perntz

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Internal Environment and Good Governance

• The internal environment concerns
• Peoples performance
• Confidence and trust in leadership
• Professionalism
• Discipline
• Ethics and moral values
• Responsibility and accountability for actions
• Good governance (good management) concerns
• Doing it right!

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Example principles of Good Governance according
to OECD

• OECD Principles of Good Governance from 1999
• Good governance should ensure that timely and
  accurate disclosure is made on all material
  matters regarding the organisation, including the
  financial situation, performance, management and
  governance of the organisation.

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Example Good Governance and Management Controls

• Management controls is one of the cornerstones in
  effective good governance.
• Good governance requires, high ethical standards,
  transparency, guiding strategy and risk policy as
  well as monitoring performance thus ensuring that
  appropriate systems of control are in place, in
  particular systems for risk management, financial
  and operational control.

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Internal Environment

• Forms the foundation for all other components or
  parts of the internal control and enterprise risk
  management process
• How to assess the internal environment?
• The factors that influence the internal
  environment

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Influencing factors

• Managements leadership of organisation
• Managements delegation of duties, authority and
  responsibilities
• Managements strategy for managing risk
• Ethical and moral values of organisation
• Code of conduct and Code of ethics
• Competence and development of personnel
• The structure of the organisation
• Human resource entity for recruiting, training
  and evaluating
• Others specific to the operations of the entity

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Workshop influencing factors

• Spend 20 minutes discussing what are the main
  influencing factors that affect or form your
  internal environment
• List the factors and account for these
• Which one is the more prominent one?
• Which one has the least influence?

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1) Managements leadership

• How managers management style influences the
  internal environment
• Attitude to internal control and risk management
• Compliance with regulations
• Compliance with internal guidelines and policies
• Contact with lower level managers and other staff
• Regards to performance of staff in general
• Communication of goals of operations internally
  and externally

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2) Integrity and ethics

• How ethical and moral values affect the internal
  environment
• Code of Ethics and Code of Conduct
• Promotion of values
• Set a good example to follow
• Communication of values
• Human Resource department

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Example ESV managements leadership and ethics
and values

• Staff policy for all personnel incl. management
• States the vision and mission for ESV
• Purpose is to explain what it means to be
  employed at ESV
• Promotes a basic principle of how ESV staff acts
  towards each other, towards external parties
• States values such as professionalism, ethical
  and moral behaviour, working conditions in
  working environment, that we follow legislation,
  that discrimination is not accepted etc.

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Example ESV cont.

• Staff policy cont
• States what is expected of each employee, e.g.
• Reach results as decided together with manager
• Develop skills as decided together with manager
• Develop operations by suggestions and ideas
• Co-operation with other co-workers
• States what is expected furthermore from each
  manager e.g.
• Make certain that staff are well informed of the
  objectives of the operations etc.
• Manage and lead operations together with staff
• Set a good example to all staff by following
  decided policies and guidelines etc.

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3) Organisational structure

• How the decided organisational structure affects
  the internal environment
• Defines areas of operations and responsibilities
• Separation of functions
• Hierarchy
• Quality assurance process
• How reporting is undertaken within organisation

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Workshop

• How is the organisational structure of the
  Ministry of Finance decided?
• How are the areas of operations and
  responsibilities decided?
• Is there a separation of functions? How are these
  decided?
• Is there a quality assurance process in place?
• How is reporting of carried out activities,
  projects, assignments etc reported within the
  organisation?

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4) Procedures

• How the decided procedures affect the internal
  environment
• Clearly defined procedures, guidelines and
  policies
• Appropriate
• Application
• Communication of above
• Are these up-dated regularly? Who is responsible?

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Workshop

• What procedures do you follow while undertaking
  your daily tasks, assignments and duties?
• How are these decided and by whom?
• How are these procedures communicated?
• How often are these updated and who is
  responsible for updating these procedures?
• Do you feel that these are appropriate and are
  they relevant and applicable?

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Example ESV organisational structure and
procedures

• Main procedure document for ESV (arbetsordning)
• States the mission set by the Government and
  decided organisational structure with set
  departments and areas of their operational
  responsibilities for ESV
• States the chain of command from Director
  General who delegates responsibilities to
  management and experts etc.
• What type of decisions only the DG can take, what
  sort of decisions management takes etc.

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5) Delegation of authority and responsibility

• How delegation of authority and responsibility
  affects the internal environment
• Clearly defined authorisations and to whom
• Clearly defined responsibilities
• Clearly defined roles of staff
• Documentation
• How is the above communicated within
  organisation?
• Decision-making
• Compliance with regulations and other directives

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Example ESV delegation

• Main procedure document states the main delegated
  responsibilities and duties
• Special delegation decisions are taken for each
  manager for each department in regards to e.g.
• Amounts allowed to authorise
• Decisions allowed to be taken within area of
  responsibility within decided budget
• That he/she can delegate within the department to
  other staff if necessary

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5) Roles and responsibilities

• Need for distinction of roles and areas of
  responsibilities in the FMC process
• Segregation of duties
• Everyone in an organisation has some degree of
  responsibility for the process of internal
  control and enterprise risk management

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5) Roles and responsibilities cont.

• The Board of directors or head of Ministry or
  Director-General of and agency is always
  ultimately responsible and accountable for FMC
• Lower levels of management and other staff are
  also responsible for operations within their
  delegation of authority
• Internal auditors can give recommendations on how
  to improve the internal control - but do not take
  part in daily operations
• External auditors give an objective view to the
  Board and/or management in the financial
  statement audit.

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6) Human resources

• How the strategy for recruiting and maintaining
  competent personnel affects the internal
  environment
• Recruitment strategy, involvement of managers
• Defined policies, guidelines and procedures
• Career management
• Staff turnover
• Training and development of skills and
  competencies of staff
• Following-up performance of staff appraisals,
  promotions, remunerations, dismissals

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7) Managements strategy for managing risk

• If management has a strategy for managing risk in
  operations affect the internal environment
• Does management have a strategy for managing
  risk?
• Are there policies and guidelines for prevention
  of fraud and bribes, disqualifications etc?
• Communication of above?
• Monitoring of above?
• Routines for handling the above?

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Example ESV managing risks

• Policies for IT-security, states e.g.
• System-owners responsibilities
• System security plans for each system
• Principles for traceability of information and
  documentation, security logs, maintenance of
  systems, implementation and migration of new
  systems etc.
• Policies for risk management (operations and IT)

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Atmosphere of Trust - Control Benefits

• supports flow of information
• supports cooperation and delegation
• supports back-up
• encourages people to admit problems, so they can
  be solved

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Atmosphere of Trust - Evaluation Considerations

• Open communications and willingness to delegate
  are signs of trust
• Changes like restructuring or downsizing can
  affect the atmosphere of trust