The role of Internal Audit in the Municipality

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The role of Internal Audit in the Municipality

• By Victor Chuene

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Overview

• Introduction
• What is Audit
• Types of Audit
• What is Internal Audit
• Difference between External Audit Internal
  Audit
• The Audit Committee
• Audit Charters IAD and AC
• Different types of Internal Audit
• Benefits of Internal Audit Department
• Limitations of IAD
• How to leverage the IAD
• Conclusion

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Introduction

• Government is giving service delivery a high
  priority
• Municipality are being seen as the main pillar in
  service delivery and are expected to drive the
  pro-poor developmental state
• Anti-corruption, transparent governance risk
  management form the basis of the strategy of
  government
• Audit appears to be a key instrument that is to
  be used in this strategy

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What is Audit

• Audit is a systematic process of objectively
  obtaining and evaluating evidence regarding
  assertions about economic actions and events to
  ascertain the degree of correspondence between
  those assertions and established criteria and
  communicating the results to interested users.
  (American Accounting Association)

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Different Types of Audit

• Financial Statement Audit
• Compliance Audit
• Operational Audit Effectiveness Efficiency,
  Value for Money, Performance or Management Audit
• Forensic Audit
• IT Audit

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What is Internal Auditing

• MFMA Section 165 requires municipalities to set
  up internal audit unit with very clear functions
• Internal Auditing is an independent, objective
  assurance and consulting activity designed to add
  value and improve an organisations operations.
  It helps an organisation accomplish its
  objectives by bringing systematic, disciplined
  approach to evaluate and improve the
  effectiveness of risk management, control and
  governance (Institute of Internal Auditors)

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Internal or External Auditor

• The external auditor is an independent person or
  organisation who renders audit services according
  to international accepted standards. The Auditor
  General is such an auditor for government
  organisations
• The internal auditor is an employee or a
  consultant of the organisation appointed to
  perform an independent appraisal function in
  accordance with internationally accepted
  standards and code of ethics

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Difference between External Audit Internal Audit

• Internal
• Employee can be external entity outsourced or
  co-sourced
• Serves organisational needs
• Focus on assurance of attaining goals of
  organisation

• External
• Independent contractor
• Serves 3rd party needs
• Focus on accuracy comprehensibility of
  financial statements

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Difference between External Audit Internal
Audit (contd)

• Internal
• Concerned with fraud prevention
• Independent of activity being reviewed
• Reviews activities continually

• External
• Is incidentally concerned with prevention of
  fraud detection but is concerned if material
• Independent of management
• Reviews periodically

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The Audit Committee

• MFMA Section 166 requires municipalities to set
  up Audit Committees
• Independent committee that reports to Council and
  ensures the effectiveness of the audit function
• Internal and External Auditors report to the
  Audit Committee.

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Functions of Internal Audit Unit

• MFMA Sec 165 provides for
• Prepare risk-based audit plan yearly audit
  programme
• Advise accounting officer and report to audit
  committee in such matters as
• Internal audit
• Internal controls
• Accounting procedures and practices
• Performance management
• Loss control
• Compliance with MFMA, DORA and any other
  applicable legislation
• Perform any other duties assigned by the
  accounting officer

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How can Internal Audit Add Value?

• Monitor activities that top management cannot
  monitor itself
• Contribute to risk management
• Validate reports to senior management
• Protect management in technical fields
• Help in decision-making
• Review for the future-not just the past
• Help managers manage plan, organize, direct,
  control. (The practice of modern internal
  auditing by Sawyer et al)

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Is EMM IAD Adding full value?

• NO! NO! NO!
• Reasons for limited value-add
• Non-cooperation by management
• Fear and mistrust by management and staff of IAD
• Limited resources quality and quantity
• If IAD is not adding full value how do accounting
  officers ensure compliance with all the
  legislation and regulations?

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How can CM and Deputies Help?

• Be not afraid of IAD
• Accept and embrace IAD fully
• Provide input at planning of audit assignments
• Take the risk identification and management
  process seriously
• Engage with the recommendations
• Place Internal audit reports and activities on
  the Agenda of meetings

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Conclusion

• The qualified reports issued by the
  Auditor-General can be avoided or managed if the
  IAD is made more effective
• If the IAD is ignored and not resourced
  adequately controls will be undermined and the
  probability of a qualified report is almost
  certain
• If we fail the Auditor-General, Province or the
  Corruption Hotline could step in
• The IAD is a member of EMM and must be fully used
  to serve the people and communities of Ekurhuleni