RIFIX IACOP Working Group Concept Paper Svilena Simeonova Prague, March 2016

Purposes of the working group  To offer the "right model" of the distribution of the roles and places of Internal Audit, Financial Inspection and External Audit in public sector;  To identify the ways for interaction between them;  To offer an optimal strategy for modernization of the Financial Inspection in connection with the introduction of PIFC system in relant country;  To achiev common understanding on the metter;  To improve the knowledge of the IACOP members about the functions of the three institutios in different countries;  To offer a mechanisms/strategies for introduction and implementation of the RIFIX products in the Member States

RIFIX outputs: √ Concept paper on cooperation among public sector audit and financial inspection entities √ Template for Cooperation agreement between Internal Audit, Financial inspection and External audit √ Mechanisms for implementation of the rifix documents in practice in the participating states Leadership of the Working Group – Sergij, Makar, Svilena Role of the external experts – Richard, Manfred, Diana

RIFIX activities St. Petersburg, Russia, September 2013 The RIFIX survey Moscow, Russia, May 2014 Definitions, common terminology, fundamentals of the group, Development of the Concept Note for RIFIX Astana, Kazakhstan, September 2014 Revision of the draft Concept note RIFIX Erevan, Armenia, 2015 RIFIX draft Cooperation Agreement template Application issues of the RIFIX Concept Note in countries - – Presentation of the pre-event survey results about control model: Internal Audit, External Audit, Inspection Presentation of the theory, good international good practice and standards of existence of various financial control macro-models – Richard Role and place of the financial inspection in financial control model in post-Soviet states in conditions of PIFC model implementation Practical modelling of the situation: differences between Internal Audit, External Audit and Inspection

RIFIX results Common terminology Knowledge about good practices Common understanding about the differensis and symilarities Common understanding about the benefit of the good partnership between IA,EA and FI Draft Concept Paper

SIMILARITIES between financial inspection and external audit SIMILARITIES: From outside (External) Ex post activities Covers all public sector Sanctioning power (where exists) Mandate to fight fraud and corruption

DIFFERENCES between financial inspection and external audit DIFFERENCESFINANCIAL INSPECTIONEXTERNAL AUDIT Position in the state structures and reporting line Subordinated to the Minister of Finance. Reports to the Minister of Finance and to the Government Reports to the Parliament and to the public Initiation of the activity Acts on complaints and requests from citizens and other institutions Works according to the Annual plan and requests from the Parliament Aims and scope of work Focus on legalityLegality, but also Efficiency, Effectiveness and Economy. Also verification of the financial statements of the budget organizations

DIFFERENCES between financial inspection and external audit 2 DIFFERENCESFINANCIAL INSPECTION EXTERNAL AUDIT Approach Investigations of particular cases of irregularities, legal violations, fraud and corruption - inspection Analysis of implementation of the government policy as intended Types of checks Inspection: legality checkFinancial, compliance and performance audits Consequences of the activities Imposing sanctions, referring cases of fraud to the prosecutor's office, giving mandatory instructions Recommendations for improvement Usually not (with exceptions) sanctions

SIMILARITIES: SSSSS SIMILARITIES between financial inspection and internal audit SIMILARITIES: Generally ex post checks Independence Full access to information Competence to give recommendations as a result of engagement performed

DIFFERENCES between financial inspection and internal audit DIFFERENCES:FINANCIAL INSPECTION INTERNAL AUDIT Position and reporting Outside of the organization Reports to the Minister of Finance and the Government Inside of the organization Report to the Head of the organization and to Audit Committee Initiation/basis for the activities Complaints and requests from citizens and other institutions Risk-based annual plan Aims Detecting violations and corrective actions Assessing Internal Control system and recommending improvements Assurance and consulting function Scope Mostly financial transactions and procedures: legality All activities and aspects of the Internal Control System; legality and performance

DIFFERENCES between financial inspection and internal audit 2 DIFFERENCES:FINANCIAL INSPECTION INTERNAL AUDIT Perspective Focused on individuals, conclusions on legal compliance Focused on the system Direction of the results To the past - to find the facts towards financial and budgetary discipline To the future - to help management to improve the system Responsibilities in dedicating and investigating fraud and corruption Detection, investigation, sanctioning Prevention, detection of indicators Methodological ground No generally accepted standardsInternational standards of the IIA

RIFIX CONCEPT PAPER The concept paper explores the need for Internal Audit to cooperate with other public sector organisations in the particular circumstances that exist in many PEMPAL member countries. IACOP recognizes that there are formal and informal ways of promoting cooperation. These can range from relatively simple coordination of activities to more active ways of working together. This spectrum of cooperation means that audit and inspection functions may cooperate effectively at different levels of formality and effort. It may be helpful for cooperation to be formally recognized in an agreement between one or more institutions. Annex A explores the options for developing a cooperation agreement providing some suggested wording that could be used in developing an agreement at a country level.

RIFIX CONCEPT PAPER The Concept paper: introduces the three functions and thier institutional arrangement Descripes :  the key features of the role and work, differnses and similarities  Main areas of potential overlap of the functions  The benefits and risks of cooperation  Cooperation framework – types and principles

RIFIX Thank you!