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Workshop on improving outputs of internal control units through self-

assessment

Internal Control and Internal Audit

José Viegas Ribeiro, SIGMA Amman, Jordan

6 November 2014

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Reform of internal audit in Jordan

WHY is the REFORM important for JORDAN?

• Good governance

• Accountability – protect taxpayers' money and respect international public management good practices

• Increase public confidence in public management

• Country reputation amongst the international donor community - donors need to get better value for money from their taxpayers who want to ensure that money is well spent

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Reform of internal audit in Jordan

WHAT does the REFORM mean ?

• Sound and efficient public management

• Budgetary reform – pressure to keep delivering services with decrease in funds and resources (“more with less”)

• Separation between internal control (embedded in the management activity) and internal audit (independent function)

• Reliable audit function – external (Audit Bureau) and internal (FC Units)

• External audit (Audit Bureau) to withdraw from ex-ante visa (requires FC Units to be effective and fully operational)

• Parliament oversight

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Reform of internal audit in Jordan

WHAT does the REFORM mean ?

• Clarification and segregation of CONCEPTS, and

• Clarification and segregation of FUNCTIONS

• International best practices and good governance

…..

• … and ….Internal control is not Internal audit

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So, in brief…

• Internal audit is not internal control….

• Internal control procedures are a management responsibility and activity…

• carried out by the organization management and staff,

• part of day to day activity…

• and not by an independent/segregated unit

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So, in brief…

• Internal audit is ALSO not financial control….

• Financial control is more a checking or controlling activity,

• mainly on transactions…and not on the functioning of the internal control systems,

• with the focus on legality and regularity

• and it is ex-ante

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So, in brief…

• Internal audit…

• Provides an independent assurance and opinion to the management on the quality of the internal control systems

• It is not a checking or controlling activity and it is not embedded in the day to day activity of the organization

• it is carried out by an independent/segregated unit (so, not embedded in the daily management activity)

• and it is ex-post

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More in detail, internal Control is….

Any action taken by the management or the board to manage the risks and increase the likelihood that established objectives and goals will be achieved (internal control procedures and environment)

So, IC is there to address the risks and provide reasonable assurance that objectives are achieved

It is carried out by the entity’s management and staff (not by an independent unit)

It is carried out both before payments (ex-ante) or after payments (ex-post) and it is transaction/operations oriented

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More in detail, internal AUDIT is….

reporting to the high management,

which provides….

independent , objective assurance and consulting services designed to add value to the organization,

by improving the organization operations and evaluating the effectiveness of governance, as a combination of processes and structures implemented by the management to direct, manage and monitor the activities of the organization, risk management and control processes

It is carried out after payments (ex-post) and it is system oriented (not focused on errors, but on system attributes and deviations)

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Internal Control vs Internal Audit

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How can IA units contribute to the success of the reform?

• IA must become a reliable partner of the management

• Assess and prioritize risks appropriately

• Provide constructive solutions, advice and assistance, if requested

• Develop the capacity to anticipate/handle crisis

• Develop key skills to be able to provide better targeted recommendations and face the organisational challenges

• Measure and respond to the key stakeholders' expectations

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An Essential Tool of Management

• A reliable and independent IA function helps top managers by:

• Making a crucial contribution to the sound financial management of

the public sector

• A win-win situation for all stakeholders : tax payers, Government, Ministry of Finance, line ministries, other public sector bodies, the Parliament, the Audit Bureau and public sector managers

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