Radmila Trkulja, Head of the CHU of Republika Srpska

 I Legal basis of the obligation to establish PIFC  II Factors that influence the establishment and development of PIFC  III Current situation in PIFC - CHU - Internal Audit - FMC 2

 Stabilization and Accession Agreement (SAA) – later the Chapter 32. of the Negotiations- Financial Control  Updated Action Plan 1of the Public Administration Reform Strategy  Strategy for Establishment and Development of the PIFC in the public sector of Republika Srpska  The Law on the Internal Audit in the Public Sector of Republika Srpska 3

1. PIFC Concept of the EC – DG Budget - Impact of the PIFC - Elements of the PIFC Concept 2. Environment in Republika Srpska 3. Environment in the institution in question 4

- Impact of the PIFC  Concept for the renewal of the system of internal controls in compliance with the internationally accepted standards  Overall system at the level of the entire public administration  Implies the increased accountability of the management and the transparency in public funds spending  Provides evaluation of the efficiency and effectiveness of the transactions, besides the present model of finacial management based on the examining of the compliance with the regulations at the realization of the significant transactions 5

1. PIFC Concept - Elements of PIFC a) Central Harmonization Unit (CHU) - Drafting and updating of the PIFC Strategy - Drafting of the primary and the secondary legislation for the FMC and the Internal Audit in compliance with the internationally accepted standards - Preparation of the Training Program for the FMC staff and the internal auditors and ensuring the implementation of the Training Program -Supervision and the annual reporting on the established systems of the FMC and the Internal Audit 6

1. PIFC Concept - Elements of PIFC b) Financial management and control (FMC) based on the INTOSAI framework of the internal controls which includes: - Control Environment - Risk Assessment - Control Activities - Information and communication - Monitoring and evaluation 7

1. PIFC Concept - Elements of PIFC c) Internal audit function – function of assurance - Evaluation of the adequacy and efectivness of the system of internal controls - Evaluation of the risk management system -Evaluation of the adequacy and efectivness of the management and governance of the institution -Advisory role to the management -Covers all activites of the organization -Work based on the assesed risk -Folow up on the recommendation that were given 8

2. Environment in Republika Srpska  Existing organisation of the public sector of Republika Srpska  The financial crisis and the posibility of employment of the new civil servants  Competency of the CHU staff and the adequate staffing  Possibility to employ the staff in the function of the internal auditors with the requested knowledge and skills  Coordination of development of the Internal Audit parallely with the FMC (adequate and efficient internal controls, inspection, selfassesment, etc.)  Level of implementation of other processes of the public administration reform, such as manageent of the public finances and development of the central policies of the RS Government  EU Technical Assitance  Work of the Coordination Board (CO) of CHUs 9

3. Environment in the institution in question  Defined goals of the institutions  Perplexity and complexity of the processes and regulations  Teritorial organization of the institution  Process of the risk management in the organization  Budget of the organization and the number of the staff  Republic Administrations, Republic Administrative Organizations, lower budgetary / beneficiary units and other forms of the organisation in the institutions  Dedication of the management to the principles of the sound financial managment and control 10

1. CHU  CHU establishment in compliance with the Law on Internal Audit in the public sector of Republika Srpska  Draftinf og internal regulations for the organization and management of the CHU 2. Internal audit  Law on Internal Audit in the public sector of Republika Srpska  Rule Book on additional critera for the establishment of the IA Units  Rule Book on additional critera for employment of the internal auditors  Code of Ethics of Internal Auditors  Charter of Internal Auditors  Manual for the Work of Internal Auditors  Trainigs of the internal auditors by the experts contracted by the PKF Project with the coordination of the CHU 3. FMC  Law on FMC  Trainings of the FMC staff by the experts contracted by the PKF Project with the coordination of CHU 11

1. Organisational and functional independence of the Internal Audit  Independent organizational unit within the institution, with free access to the staff and information of the institution, reporting in compliance with the responsibility for the determined errors and irregularties  Independence from the activity that is being audited  Planning of the audit based on the risk assesment  Functional independence realized throught the freedom in identification of the scope of its work, planning, conducting and communication of the work results  Independent responsibility for the quality of the work 12

2. Managerial Responsibility  Establishment and development of the function of the Internal Audit with the budget sufficient for the professional realization of the tasks of the Internal Audit  Provide appropriate trainings of the internal auditors with the aim to attain and maintain the competences and skills (each audit activity demands a different combination of knowledge and skills)  Responsibility for the management process of the institution  Responsibility to manage the risk  Responsibility for the system of internal controls  Inform the IA on all plans, changes of the risk profiles and on the internal controls  Changes of the policies and procedures  Obligation of the implementation of the recommendations of the Internal Audit  Manage the irregularties and doubts on fraud  Documentation of the above listed processes 13

3. Ties with the external audit  The audit of the financial reports along side with good knowledge of internal controls  Are complementary  Up to date communication during the planning of the audit in order to avoid duplication of activities  Exchange of information on scope, audit approach and findings of the audit  Exchange of reports of the internal audit and the letter to the management of the external audit  Independence of work and the responsibility for thier own activities  Must not use the internal auditors to follow up the implementation of their recommendations  Support the independence of work of internal auditors from the management and from the engagement by the external audit on realization of their activities 14

Thank you for your attention! 15