The Royal Government of Bhutan (RGoB) has placed the highest importance to enhancing good governance based on the pillars of efficiency, transparency and accountability. The Royal Civil Service Commission (RCSC), taking the aspirations of enhancing good governance, during its 152nd Meeting held on 1st March 2000, approved the staffing pattern for the Internal Audit Units (IAU) in the Ministries. Accordingly, Internal Audit Units were established for the first time on 1st June 2000 with RCSC selected civil servants from different fields posting them as Internal Auditors to seven Ministries.
The Royal Government of Bhutan (RGoB) established an Internal Audit Service (IAS), as part of its efforts to further enhance good governance, transparency, accountability and efficiency and effectiveness of government operations, including risk management and the internal control framework of Ministries and all government entities that directly receive and manage budget allocations.
The RGoB has already established Internal Audit Units (IAUs) in all Ministries. Subject to the availability of adequate and appropriate resources, it is the policy of the RGoB to establish IAUs in all Dzongkhags and other budgetary bodies as well.
Under Section 23 (o) of the Finance Act, 2007, the Ministry of Finance (MOF) has the responsibility for administering the IAS, and issuing guidelines.
In fulfilling its responsibility under the Finance Act, 2007, the Ministry of Finance has established an Internal Audit Charter. The Charter provides the organizational framework for the provision of internal audit services and prescribes policies, standards and responsibilities for the efficient and effective functioning of the IAS in the RGoB.
The Royal Audit Authority (RAA) and the Anticorruption Commission (ACC) have been continuously emphasizing the need for government agencies to recruit and place internal auditors for internal control and improve the governance and management processes.
There is a global thrust for change and modernization of governments and three components that consistently emerge as being important are (i) clear delineation of responsibilities, (ii) greater accountability and (iii) a modern internal control framework. This would require a major paradigm shift from the existing perception of its role, and the paradigm shift will involve a major restructuring and up-gradation of the skills. Internal Auditors can be partners, collaborators, guides and mentors in ensuring effective modernization and good governance.
The present day’s economic scenario and Internal Audit embroilment in Ministries, Local Governments and Autonomous Agencies strongly indicate requirement for greater functional clarity.
The changing political scenario also demands the strengthening of the IAS and the commitment of the government to enhance good governance provides ideal conditions for the IAS to not only be strengthened but also institutionalized.
DEFINITION OF INTERNAL AUDIT
“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.”
Based on the above IIA (Institute of Internal Auditors) definition, the RGoB has accordingly defined the purpose of the Internal Audit in the Internal Audit Charter as:
“The Internal Audit Units conduct audits and reviews, using a systematic and disciplined approach, to provide the respective Chief Executives (Honourable Secretary) of Ministries, Dzongkhags and other budgetary bodies with:
(i) Independent and objective assurance on the efficiency and effectiveness of their respective Entity’s governance, risk management, control and accountability processes.
(ii) Proposals and recommendations for improving the efficiency and effectiveness of the Entity’s operations, achieving organizational objectives and proper stewardship of resources.”
Mandates and Functions
IIA Standard 1100 – Independence and Objectivity:
The internal audit activity must be independent, and internal auditors should be objective in performing their work.
IIA Standard 1110 – Organizational Independence:
The internal auditor must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The internal auditor must confirm to the Secretary, at least annually, the organizational independence of the internal audit activity.
Independence is an essential condition for ensuring that the work of the IA and the IAU is free from any form of bias or influence and is in fact impartial. The Charter has various provisions to ensure the organizational, functional, operational and reporting independence of the IA and the staff of the IAU. These include:
(i) The IA reports to and has direct access to the Chief Executive (Honourable Secretary)
(ii) The Chief Executive approves the Annual Work plan of the IAU and monitors its execution through communications received from the IA.
(ii) The IA has unhindered access to all forms of information, employees, contractors and facilities of the entity for the purpose of performing the audit function.
(iii) The IA or the IAU has no direct authority or responsibility for the activities it reviews. In particular, the staffs of the IAU have no direct responsibility for developing or implementing procedures or systems and do not prepare records or engage in original line processing functions or activities.
(iv) The IAU is provided an independent budget allocation to fund the audit activity.
(v) The IA and IAU are able to conduct audits and report findings, opinions, and conclusions objectively without fear of reprisal.
IA to submit separate budget to ensure organizational independence
Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.
Impairment to organizational independence and individual objectivity may occur as a result of many situations and factors. Some such instances include personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations, such as funding. IIA Practice Advisory 1130-1: Impairment to Independence or Objectivity provides further guidance on the subject.
When impairment occurs or is perceived to have occurred, the IA should take appropriate action to remove the impairment. If the impairment persists, the IA should disclose the nature of the impairment to the Chief Executive (Honourable Secretary) of the organization, together with an assessment of its impact upon the internal audit activity and the organization and recommendations to address impairment.
The term confidential means and applies to all sensitive or restricted information. It relates to both information obtained from an entity during the course of audit and the results of the audit itself. These are privileged information. Internal Auditors, unless authorized by the Internal Audit Charter or required by law, should take care not to disclose any information obtained during the audit process.
When information is requested by third parties, including other government agencies, they should be advised to approach the Chief executive (Honorable Secretary) of the organization/Ministry.
• IA to limit to the consulting services of External Audit
• IA to withdraw from HR committees
• IA to withdraw from ACC focal person
• IA to refrain from management responsibilities
The above don’ts are as per the resolution of the Internal Audit conference held at Paro and the same submitted to the Honorable Ministry of Finance.