World Bank Institute Regional Workshop for Anglophone Africa on Auditing and Financial Accountability Addis Ababa KEY ISSUES IN CREATING AN EFFECTIVE INTERNAL AUDIT FUNCTION Case study using the National Department of Health in South Africa Gloria Spelman Head: Shared Internal Audit Services (SIAS) Eastern Cape Provincial Administration South Africa

Agenda Background to the Department of Health Background to the Department of Health Setting goals and/or priorities Setting goals and/or priorities Marketing the IA function Marketing the IA function Development of charters Development of charters Setting up Audit Committee Setting up Audit Committee Development of 3 year rolling internal audit plan Development of 3 year rolling internal audit plan Reporting Reporting Relationships with external auditors Relationships with external auditors On-going challenges On-going challenges Conclusion Conclusion

Background Internal audit mandate Internal audit mandate King Report on corporate governance King Report on corporate governance PFMA & Regulations mandate the use of standards PFMA & Regulations mandate the use of standards State of the Department before having an internal audit function State of the Department before having an internal audit function Non- existent internal audit Non- existent internal audit Lack of awareness of prescripts Lack of awareness of prescripts Lack of understanding of the role of IA Lack of understanding of the role of IA Lack of commitment to achieving business plan objectives (lack of monitoring tool to ensure achievement of objectives by Directorates Lack of commitment to achieving business plan objectives (lack of monitoring tool to ensure achievement of objectives by Directorates High risk of giving the Accounting Officer something on paper which has actually not been achieved and giving wrong advice High risk of giving the Accounting Officer something on paper which has actually not been achieved and giving wrong advice No understanding of risk concept No understanding of risk concept

Setting goals and/or priorities Creating an enabling environment (why start here?) Creating an enabling environment (why start here?) - Identification and communication with role players. - Setting vision and mission - Ensuring independence - Relationship with the Accounting Officer Establishing a solid foundation for the future Establishing a solid foundation for the future - Training and developing staff (relationship with the IIA) - Staff recruitment and and retention plan - Motivating staff to develop passion for the IA function - Setting up an IA reference centre (library) - Getting buy-in and support from management and staff (how) - Benchmarking - Integrity assessments

Marketing the IA function Interacting with management Interacting with management –Organizing management workshops, breakfast seminars etc. –Informal discussions with client staff members. Need to interact with organized labor Need to interact with organized labor –Their influence and impact cannot be ignored. Need to advertise Need to advertise –Putting IIA posters in outside the IA offices What happened? What happened?

Impact of Marketing IA… Management support and buy-in Management support and buy-in Staff understanding and buy-in on IA function Staff understanding and buy-in on IA function Pressure on IA to meet client expectations Pressure on IA to meet client expectations Greater awareness and an enthusiasm to comply with crucial government prescripts i.e. laws, regulations, etc Greater awareness and an enthusiasm to comply with crucial government prescripts i.e. laws, regulations, etc

Development of Audit Charters Internal audit Charters Internal audit Charters Drafting of charter in line with the IIA standards and King Report. Drafting of charter in line with the IIA standards and King Report. Approval process Approval process

Audit Committee challenges Audit Committee challenges Why was IA involved? Why was IA involved? What we did? What we did? –Recruitment of members. –Compliance with the Public Finance Management Act with regard to the composition. –Appointment. –Contracts. –Declaration of interest. –Meetings and remuneration. Results? Results? –Effective AC who helped the IA achieve its independence. –IA recommendations taken seriously and management accounting for non - implementation

Development of 3 Year Rolling Strategic and Annual IA Plans Why develop a strategic plan? Why develop a strategic plan? Conducting risk assessments Conducting risk assessments Outsourcing/co–sourcing Outsourcing/co–sourcing Preparation for the risk assessment workshops Preparation for the risk assessment workshops One on one discussion with management. One on one discussion with management. Developing a risk profile Developing a risk profile Approval of the IA plans Approval of the IA plans

On-Going Development of IA plans Dealing with ad hoc assignments (assurance related requests) Dealing with ad hoc assignments (assurance related requests) Dealing with fraud related ad hoc requests Dealing with fraud related ad hoc requests Developing IA structure and identifying resources Developing IA structure and identifying resources Budget approval Budget approval

Reporting Why report? Why report? –Compliance with standards –Communication –Managerial accountability How we did it? How we did it? –Report to management –Report to Audit Committee (quarterly or activity report) Issues that emerged? Issues that emerged? –Handling disagreements with management on findings

Relationships with the External Auditors Why establish the relationship? Why establish the relationship? How was this achieved? How was this achieved? Results? Results? –Reliance on IA work –Involvement in the audit steering committee of the Office of the Auditor General

Ongoing Challenges Covering the entire IA plan Covering the entire IA plan Identifying risks at the strategic planning level Identifying risks at the strategic planning level Use of audit software to conduct audits Use of audit software to conduct audits Quality Assurance Review Quality Assurance Review Annual Review of Charters Annual Review of Charters Balancing our marketing strategy with our strategy (i.e. ability to deliver) Balancing our marketing strategy with our strategy (i.e. ability to deliver)

Conclusion In conclusion, ladies and gentlemen, it takes more than passion or patience to establish an internal audit function in the public service. All those that are employed to head this function must not only take IA as a job but have passion to serve their countries and willingness to make a difference.