IAS Conference – Brussels Practical Experiences of International Organizations with Audit Committees Thierry Rajaobelina Acting Director, Office of Internal Oversight Organization for Security and Co-operation in Europe

3 I will cover….  Introduction to the OSCE  Challenges in the internal audit function in International Organizations (IOs)  Position statement by IOs on Audit Committees (ACs)  Practices to follow and to avoid  Benchmarking data

4 South Eastern Europe Eastern Europe Central Asia Caucasus 17 Field Operations in fourregions 3 Institutions & Secretariat 56 participating States & 12 Partners for Co-operation

5 The OSCE: A forum for dialogue

6 Audit Committees: A new process for International Organizations (IOs)  A professional and independent internal audit (IA) function evolved starting in the mid-nineties  IIA standards were adopted  However subsidiary committees (finance, administration, budget…) of ultimate Governing Body were perceived as fulfilling the Audit Committee role  First Audit Committees appeared a decade ago  UN system: 2002

7 Challenges faced by the Audit Function in IOs (1)  Significant progress achieved in enhancing the audit function in the past 10 years in response to public pressure for better scrutiny, transparency and accountability Internal Auditing  Many organizations need to improve independence, capabilities, resources and processes  Political context Other issues:  Follow-up/ implementation of recommendations  Communicating audit results

8 Challenges faced by the Audit Function in IOs (2) External Auditing  Usually a Supreme Audit Institution of a member/participating State  Selection/rotation process not clearly regulated in some IOs  Quality assessment review of external auditors lacking Other issues:  Potential overlap with IA function/audit engagement  Potential conflict of interest  Single audit principle/request for third party verifications

9 ACs in IOs are evolving into Oversight Committees  Many IA offices are now part of a larger Oversight department/service  combining audit, evaluation and investigation functions  Oversight Committee membership has to reflect such expertise  However, some IOs  have yet to establish an AC  have an AC exclusively composed of internal membership i.e. staff members

10 OSCE Reporting Relationships Secretary General (CAO) AuditCommittee InternalOversight ExternalAuditors PermanentCouncil (Governing Body)

11 How does your Audit Committee behave?

12 Challenges to effective ACs in IOs (1)  Political context, e.g. appointments  Composition (internal / external, expertise, remuneration...)  Terms of reference/mandate/responsibilities  including selection of CAE/external auditor  Professional assessment of AC performance  AC Reporting lines and independence

13 Challenges to effective ACs in IOs (2)  Number of members  Mix of expertise  Interaction of members (within AC and with Organization)  Level of activity from too detached to interfering  Understanding of role  Understanding of business

14 Sleeping

15 The Big Four Banner 4

16 The Diplomat

17 Some good practices observed  Respect for existing oversight functions and assurance providers  Decline issues referred to it (unless within mandate)  Choose one or two issues and make a difference  Review Terms of Reference and modus operandi  Selection/reappointment of CAE and External Auditor  Combined certification/experience in audit/accounting/oversight  Independent AC secretariat (reporting to AC)

18 Some practices to avoid  Terms of reference confusion e.g. almost exclusive focus on IA function; interference in operations  Poor induction resulting in briefings overload  Lack of follow-up on previous annual reports and recommendations  Unclear roadmap resulting in poor scheduling of meetings  No standardized format for meeting records resulting in unclear outputs, action items or recommendations  Too many or too few field visits (cost!)

19 Communicating with Governing Bodies through Audit Committees “ Few components of oversight are as critical to effective and successful audit committee oversight of internal auditing as its two-way communication with the internal audit activity.” (IIA paper on audit committees)

20 Good communication from the AC point of view The AC should  Agree on the IA charter with the Chief Audit Executive  Periodically ensure that the IA activity has the appropriate financial and human resources  Review the scope and determine the appropriateness of the audit plan  Be informed of risks that could hinder the achievement of the objectives  Be informed of any fraud risks  Be assured of the reliability of the operational information  Be assured of appropriate disclosure mechanisms

21 IOs issued a Position Statement  RIAS (Representatives of Internal Audit Services of the UN and Multilateral Institutions)  formed in 1969 by a handful of UN IA offices to discuss issues of common interests – annual meetings and working groups  Over four decades participation has extended to the International Financial Institutions (IFIs) and other international organizations  AC related issues have been a long standing agenda item  In 2008 RIAS promulgated a Position Statement providing a description of generally accepted AC principles and some identified good practices

22 RIAS Position Statement  RIAS consulted The IIA in preparing the Position Statement  Recommends the establishment of effective and independent audit committees for United Nations entities and other similar multilateral institutions  with written charters approved by their governing bodies; and  composed of independent, objective, experienced and competent members

23 RIAS Position Statement: Principles  Purpose  Authority  Composition

24 RIAS Position Statement: Responsibilities  Risks and Control  Financial statements  Internal audit  External audit  Values and Ethics

25 RIAS Position Statement: Operation  Status  Annual plan  Meetings  Resources  Conditions of service

26 IIA GAIN Benchmarking Report on ACs  422 organizations participated in the GAIN Survey 2010 (= ‘universe’), 50 per cent with international activities  Heterogeneous group of organizations; e.g. size, expenses, assets, industries  Close to 100% of organizations have an AC in place

27 IIA GAIN Benchmarking Report (continued)  Average number of AC members: five  On average the AC meets five times a year  Ninety percent of ACs are chaired either by someone from outside the organization or independent of the organization

28 IIA GAIN Benchmarking Report (continued)  “ HoIA” – Fourteen Heads of Internal Audit in International Organizations in Europe  Four out of five organizations have an AC in place  Average number of AC members: nine  On average the AC meets three times a year  Two out of three ACs are chaired by an external member  ACs have generally a less strong role than at the “universe” level

29 IIA GAIN Benchmarking Report (continued)

30 IIA GAIN Benchmarking Report (continued)- Composition

31 IIA GAIN Benchmarking Report (continued)-– Private sessions

32 IIA GAIN Benchmarking Report (continued)- Meetings

33 IIA GAIN Benchmarking Report (continued)- Responsibilities

34 IIA GAIN Benchmarking Report (continue) - Professional development provided by Internal Audit

35 The Future  Evolution of Audit Committees in IOs  From heavy-handedness to a balanced role  Potential of sub-committees for larger Audit Committees  Better networking of IO Audit Committees  De-politicizing the appointment of members

36 Thank you for your attention!