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Internal Audit: Finding its Place in Public Financial Management

Author: C N Van Gansberghe
Date: 2005
Size: 17 pages (200 KB)

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Summary

What is the role of internal auditing in public financial management and service delivery? This article, published by the World Bank, argues that effective internal auditing procedures, if supported by donors, can promote greater efficiency and accountability by informing governments about the risks and improvements in public finance management and service delivery. Efficient internal auditing procedures require compliance with strict standards, effective risk management and reform of financial management capacity.

Internal auditing was originally conceived as a simple procedure for checking documents and accounts. However, the modern concept of internal auditing has evolved considerably due to the demands of democratic accountability and technological advances. Internal auditing is currently viewed as an objective activity designed to evaluate and improve the effectiveness of an organisation's risk management, control and governance and as an integral part of public financial management.

Significant steps need to be taken to ensure the effective use of internal auditing as a tool for good public finance management:

• Ensuring the independence and integrity of internal auditing within government bodies and organisations through the separation of internal auditing from executive functions.
• Promoting compliance with strict auditing standards. The Institute of Internal Auditors has developed international guidelines and standards which are accepted as benchmarks for best practice.
• Making the shift from a policing role towards a positive contribution to effective risk management and efficient service delivery.
• Moving beyond compliance with rules to promote an ethical climate for the conduct of business, a culture of professionalism, strong human resources and active leadership.
• Developing an appropriate legal framework to embed internal auditing procedures within the public sector and ensure conformity with international standards.

Supporting internal auditing involves ensuring that internal auditing goes beyond compliance with regulations. It requires a dynamic and forward-thinking approach. Donors should:

• Provide financial and technical assistance for the promotion of efficient auditing procedures in developing countries, including the establishment of professional bodies and the training of staff.
• Encourage a change in attitudes towards internal auditing as a profession through the creation of further training opportunities, skills development and awareness raising.
• Monitor changing developments in internal auditing, for example, the innovative systems approach in the UK which encourages the achievement of benchmarks and targets for service delivery.
• Support the activities of the World Bank and the Institute of Internal Auditors in the creation of country action plans for improving internal audit procedures in developing countries and the establishment of mechanisms to monitor results.