Improving Integrity and Fighting Corruption with Strong Internal Audit Richard F. Chambers CIA, CGAP, CCSA Vice President, IIA Learning Center

Agenda Internal auditing redefined Current trends in corporate internal audit The unique nature of audit in government Ensuring accountability Improving integrity Fighting corruption Challenges facing government auditors The road ahead

Internal Audit Profession: Adapting to New Definition 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. Re-engaging on Internal Controls Fostering Enterprise Risk Management Facilitating more effective corporate governance

Emerging Trends in Corporate Internal Audit Visibility of and emphasis on internal audit reaching new heights Fostering compliance with new regulations and statutes Renewed focus on: Risk Control Governance Increased emphasis on objectivity and independence

The Unique Nature of Government Auditing Alignment – reporting relationships often defined by statute Charters – more clearly defined roles and responsibilities Access to information – typically unrestricted Operating environment – often political Visibility of final reports – often made public

Government Auditors: Assuring Accountability Government operations are funded by and provided for the benefit of the citizens Citizens have the right to expect their governments to run: Efficiently Effectively Free of waste, fraud, and mismanagement Ensuring accountability is a vital responsibility of government auditors

Government Auditors: Improving Integrity The vast majority of government officials carry out their responsibilities with the utmost integrity Some government officials fall short Audit can mitigate the risk of integrity failures by: Proactively assessing and addressing high-risk areas Promptly reporting instances of fraud to appropriate authorities for investigation Developing and delivering appropriate training and awareness briefings within their agencies

Government Auditors: Fighting Corruption Corruption can exist within government or on the part of contractors and others who conduct business with government A strong and effective audit function is a critical tool in fighting corruption Success factors include an audit function that is: Adequately resourced Independent Trained in fraud prevention and detection Networked or integrated with appropriate investigative and law enforcement agencies

The Internal Auditor’s Role in Enhancing the Ethical Culture in Their Organization Internal audit may serve as: The Chief Ethics Officer of the entity Member of an internal ethics council Assessor of the organization’s ethics climate Periodically assess ethical climate and the effectiveness of strategies, tactics and communications. Source: IIA Practice Advisory : Role of the Internal Audit Activity and Internal Auditor in the Ethical Culture of an Organization © 2001 The IIA

Top Ten Challenges Facing All Government Audit Organizations 1. Adequate audit staffing72% 2. Adequate compensation81% 3. Ability to measure performance73% 4. Adequate technology resources71% 5. Ability to report results promptly70% 6. Ability to benchmark68% 7. Promoting effective governance67% 8. Ability to plan based on risk65% 9. Ability to contract for experts62% 10. Adequate resources for CPE’s61% Source: Global Audit Information Network Flash Survey

The Global Internal Audit Profession: The Road Ahead

Additional Changes Beyond Those Already Identified Reemphasis on financial skills Stronger coordination between internal and external auditors Greater recognition of the risks from consulting and non-assurance services Continued integration of technology into the scope and processes of internal audit Assumption of multiple roles by the CAE (Chief Risk Officer; Chief Ethics Officer; etc) Growth of “pure” Internal Audit Service Providers

What Will Likely Drive Additional Change? Factors Identified by the Competency Framework of Internal Auditing (CFIA) Global and organizational change Technological innovation Competition for market share Legislative imperatives Shareholders demanding increased accountability Client’s changing expectations Strategic alliances Mergers and acquisitions

Critical Characteristics of the 21 st Century Internal Auditor Risk-based orientation Global perspective Governance expertise Technologically adept Business acumen Creative thinking and problem solving Strong ethical compass

VITAL… V ersatile: Maintaining a big-picture, proactive perspective on the entire organization-Value I nvolved: Performing roles critical to organizational success-Integrated T echnologically proficient: Using technological skills to mitigate risks, improve processes, and upgrade efficiencies A dept: Fully capable of evaluating business, technology, risk management, control and governance challenges in their organizations L eader: Taking a leadership role in risk management & organizational effectiveness

It is easy to be ethical until it costs you something! General Gordon Sullivan US Army Chief of Staff

Motto Progress Through Sharing: The Institute of Internal Auditors

Mission To be the primary international professional association, organized on a worldwide basis, dedicated to the promotion and development of the practice of internal auditing

To accomplish its mission, The Institute has four primary objectives: 1. An International Professional Organization (effectively using the skills of volunteers and staff) 2. A Recognized Authority 3. An Acknowledged Leader 4. A Principal Educator IIA Primary Objectives

The IIA is an association of individual members All members commit to follow the IIA Code of Ethics and International Standards for the Professional Practice of Internal Auditing Members join The IIA through local or national affiliates (chapters and institutes), or directly as members-at-large (where no affiliate exists) Membership Organization

Membership More than doubled in 12 years January 1,1992 Membership = 44,454 January 31, 2004 Membership = 90,389 44,206 or 48 % in North America 46,183 or 52 % in other countries

Certified Internal Auditor Established in 1972, the CIA is the Global Mark of Excellence in Internal Auditing

What does The IIA offer? Networking Certifications Guidance Training Benchmarking Research/Publications Professionalism Internet

Questions? Richard F. Chambers Acting President, The Institute of Internal Auditors