1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 3.2 -Internal Control & Audit

2. 2.2 & 2.3 Planning and budgeting 3.1 The Budget Execution Cycle 5.2 Decentralisation 1.1 Introduction 2.1 Macroeconomics of the Budget 4.1 Revenue Administration 3.2 Payroll, Procurement & IT 1.3 Budget Classification 4.3 Accounting & Reporting 4.2 Treasury Management 1.2 The Budget 5.3 Assessing & Recapitulation 3.3 Internal Control & Audit 5.1 External Scrutiny & Oversight Module map

3. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit independence of internal audit Module outline 3

4. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit independence of internal audit Module outline 4

5. Internal control is a process, effected by management, designed to provide assurances on: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with laws and regulations Safeguarding against loss, misuse and damage Internal Control - Definition 5

6. Can help prevent corruption at officer/internal level Can help reduce a culture of corruption Has limited ability to detect corruption at political level Is part of the armoury against corruption. Internal Control – and Corruption 6

7. Internal control cannot by itself ensure the achievement of these the general objectives Human error Resource constraints Change Management attitude Limitations 7

8. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit independence of internal audit Module outline 8

9. Internal control consists of five interrelated components: Control environment Risk assessment Control activities Information and communication Monitoring Internal Controls 9

10. COSO Pyramid 10

11. Sets the tone of an organisation, influencing the control consciousness of its staff Culture, staff morale, attitude to risk Organisational structure Personnel policies Control Environment 11

12. Risk identification: Risk evaluation – likelihood and impact Assessment of the risk appetite of the organisation Development of responses Transfer, tolerate or treat Risk Assessment 12

13. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit independence of internal audit Module outline 13

14. Authorization and approval procedures Segregation of duties (authorizing, processing, recording, reviewing) Physical & virtual controls over resources and records Reconciliations – bank statement & cash book Supervision Control Activities 14

15. Access controls - passwords Development controls Service continuity – backup - anti-virus Control Activities - IT 15

16. Financial reports – monthly budget statements Key personnel receive and understand reports Information & Communication 16

17. 1.Budgeting and accounting 2.Revenue 3.Expenditure controls 4.Payroll 5.Stock and fixed asset records KEY INTERNAL CONTROLS 17

18. Financial regulations are up to date Budget agreed before the start of the year Aaccounts audited & published within one year of the year-end Suitable financial coding structure is maintained 1.Budgeting and accounting 18

19. Annual listing of tax, fees and charges All revenue receipted and promptly banked intact Income & receipts reconciled to bank statements Summary of all income received produced monthly 2.Revenue 19

20. 2.Revenue 20 Annual listing of tax, fees and charges All revenue receipted and promptly banked intact Income & receipts reconciled to bank statements Summary of all income received produced monthly

21. Invoice or receipt retained for all expenditure Segregation of duties Monthly bank reconciliations Approved list of suppliers Competitive tendering for capital contracts 3.Expenditure controls 21

22. Independent stock takes undertaken annually Fixed assets register maintained & checked annually Disposal of all public assets carefully controlled by public auctions 6.Stock & fixed asset records 22

23. Goal - assurance that public funds are being used for intended purpose & Value For Money (VFM) Public Internal Financial Control Financial Management & Control systems Functionally independent internal audit Central Harmonization Unit (CHU) - developing methodologies and standards & monitoring

24. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit independence of internal audit Module outline 24

25. Inspection or compliance audit Operationally independent unit checking that internal controls are working properly and making recommendations for optimization of controls INTERNAL AUDIT 25

26. General Financial Inspectorate reviews transactions, accounts and organizations compliance - financial laws & regulations corrective – analyze problems & recommend change reports to the Ministry of Finance Inspection or compliance audit

27. Easier to identify irregularities than poor internal control Systems (risk based) audit 27

28. Internal audit’s scope should include the entity’s systems, procedures and locations Internal audit should audit internal control systems, risk management and corporate governance procedures Plan to cover the most significant (risky) systems each year Systems (risk based) audit (2) 28

29. Practical steps to improve internal control Be specific Prioritisation of recommendations Follow-up Recommendations 29

30. Internal Controls frameworks of internal control basic internal controls Internal Audit compliance & systems audit challenges of introducing systems audit independence of internal audit Module outline 30

31. Report direct to the Permanent Secretary or Chief Executive Single department in Ministry of Finance, headed by a director Independent of the Accountant General Independence of internal audit 31

32. 1.Strong internal controls are essential to reduce mistakes, waste, fraud & corruption 2.Compliance audits are required. 3.System audit is seen as a best practice, but establishing strong systems/risk based internal audit takes time. Key Messages 32