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Key Text The Role of Internal Audit in Government Financial Management: An International Perspective

Author: J Diamond
Date: 2002
Size: 36 pages (1230 KB)

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Summary

How relevant are the Internal Audit (IA) guidelines to developing and transitional countries? A variety of IA models and methods exist: is there one model that can represent the way forward for all countries? This paper looks at the nature of the IA, its evolution within the parameters of the centralisation and decentralisation approaches, and the wider applicability of these procedures and methods to developing and transitional economies.

Some of the key findings are:

In IAs, the importance of the Public Expenditure Management (PEM) system has historically not been given enough emphasis.
This has perhaps changed in recent years as factors such as good governance and crisis management have become synonymous with good development.
In developed countries, however, there is polarisation in opinion on whether a decentralised approach or a centralised approach to the IA is better. Traditionally in Europe, a French (centralised) versus British (Westminster decentralised) dichotomy in thinking exists.
In Africa, countries have generally adopted the approach of the Anglophone or Francophone model. However, in both, tension in the system has often resulted in countries oscillating between decentralisation and centralisation.
In most African countries, IA processes have come under such strain in the face of continued economic stress that constant adapting and ‘patching up’ has been normal.

Studies show that the IA is not as straightforward and unambiguous as first thought:

There are general principles that seem common despite the differences in approach. These are the use of the IA as a central component of internal financial controls, and its separation from the day-to-day management of an organisation.
An IA system should be designed with the specific priorities of the country in mind. However, it is recommended that the approach taken in developing and transitional economies should prioritise prudence and stabilisation, rather than embracing decentralisation too hastily.
The IA is such a fundamental element of PEM that it must be properly resourced.

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Source: Diamond, J., 2002, 'The Role of Internal Audit in Government Financial Management: An International Perspective', International Monetary Fund (IMF), Washington D.C.
Author: Jack Diamond , publicaffairs@imf.org
International Monetary Fund, http://www.imf.org