1 Emerging Issues in Internal Audit Charles Ndegwa

2 Contents 1.Background 2.Emerging issues i.Framework for Audit Quality ii.Auditor and Money Laundering iii.Audit of computerised environments 3.Discussion

3 Organisations operate in a dynamic and volatile environment Economic environment – Interconnected world economy – High cost of doing business – High level of competition – Changes in organisation’s business models 3 Background

4 Changes in technology Electronic procurement and payments Electronic payments in public transport Chip technology for debit cards Social media Data security breaches Fraud through information systems Sharing of infrastructure 4 Background

5 Legal and Regulatory environment Constitution 2010 Increase in the number of regulators More complex regulation and closer scrutiny by regulators Culture of litigation developing Merging of public corporations 30% procurement rule e-procurement Sharing of MPESA platform by telecoms 5 Background

6 Engagement with stakeholders High stakeholders’ expectations Growing voice / activism by stakeholders International crime networks Terrorism Money laundering Poaching Counterfeiting of products Drug trafficking 6 Background

7 What is expected of the internal auditor?

8 Framework for Audit Quality Quality is: Meeting the expected standards (IPPF, Internal Policies, Legislation / regulations) to satisfy customer / stakeholder needs (Audit committee, Management, Regulators, Internal audit team)

9 Internal Auditors Professional Standards

10 IIA Standards on Quality 1300 – The Chief Audit Executive must develop and maintain a quality assurance and improvement program (QAIP) that covers all aspects of the internal audit activity 1310 – The quality assurance and improvement program must include both internal and external assessments NoGap / AreaActionBy WhoBy When

11 IPPF – Definition Mandate and work undertaken by internal audit must reflect the definition of internal auditing Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes - IIA

12 IPPF – Code of Ethics Principles Integrity Objectivity Confidentiality Competency

13 IPPF – IIA Standards Attribute StandardsPerformance Standards 1100 – Purpose, Authority and Responsibility 2000 – Managing the internal audit function 1100 – Independence and Objectivity 2100 – Nature of work 1200 – Proficiency and due professional care 2200 – Engagement Planning 1300 – Quality Assurance and Improvement Program Performing the Engagement 2400 – Communicating Results 2500 – Monitoring Progress 2600 – Resolution of Senior Management’s Acceptance of Risks

14 Quality Assurance Review (QAR) 1.Quality is assessed in two broad categories – feedback from stakeholders (survey) and compliance to the standards 2.QAR can be internal or external 3.Requirement to have an external QAR every 5 years

15 Summary - audit quality tips 1.Mandate of Internal Audit Include forward looking consultancies Avoid mandate that compromises independence Communicate mandate to stakeholders 2.Relationships with clients / stakeholders Obtain customers expectations and feedback Communicate internal audit expectations Build trust and credibility Maintain regular communication

16 3.Skills and competence Create sections / specialisation in internal audit as required Seek training in business operations Build or seek external expertise for specialised areas Research and seek technical advice from auditors networks Summary - audit quality tips

17 4.Audit Methodology Risk based approach – planning, engagements, reporting and follow up Leverage on technology – audit working papers management, data analysis 5.Reporting Address root causes of issues Simplify reporting Clear and concise reporting Reports supported by findings Summary - audit quality tips

18 Discussion

19 Charles Ndegwa