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INTERNAL AUDIT IN BULGARIA –

DEVELOPMENTS AND CHALLENGES

PEM PAL IA CoP Sofia, Bulgaria April 17-20, 2012

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CONTENTCONTENT

Reform of the national PIFC systemReform of the national PIFC system Current Internal Audit system Current Internal Audit system Setting-up and development of CHU Setting-up and development of CHU Problems and challenges Problems and challenges

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SOME HISTORY …SOME HISTORY …

Factors caused the changesFactors caused the changes::

Engagements taken under Chapter 28 Financial Engagements taken under Chapter 28 Financial ControlControl

SIGMA peer reviews on the PIFC system SIGMA peer reviews on the PIFC system recommendations recommendations

Twinning projects with France, Spain and Twinning projects with France, Spain and GermanyGermany

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FIRST STAGE OF THE REFORM : 2001-2006FIRST STAGE OF THE REFORM : 2001-2006 TRANSITIONAL PERIODTRANSITIONAL PERIOD

FROM INSPECTION TO INTERNAL AUDITFROM INSPECTION TO INTERNAL AUDIT

Policy paperPolicy paper New LawNew Law TrainingsTrainings ManualManual Key problems:Key problems:- Centralized IA system Centralized IA system - Internal Audit was merged with Inspection – Internal Audit was merged with Inspection –

internal auditors impose sanctions internal auditors impose sanctions

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InspectionInspection InternalInternal AuditingAuditing ex post checks - mainly ex post checks - mainly

yes/no - for law complianceyes/no - for law compliance from outside (MoF)from outside (MoF) of financial activitiesof financial activities focused on individuals focused on individuals aim: detecting violations aim: detecting violations

and imposing sanctionsand imposing sanctions reviewing for the past to reviewing for the past to

assure financial and assure financial and budgetary disciplinebudgetary discipline

ex post checks for ex post checks for assurance, but also assurance, but also consultingconsulting

from insidefrom inside of all activitiesof all activities focused on systemsfocused on systems aim: assessing internal aim: assessing internal

control systems and control systems and recommending recommending improvements improvements

reviewing for the future to reviewing for the future to help managementhelp management

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SECOND STAGE OF THE REFORMSECOND STAGE OF THE REFORM

Three new Laws:Three new Laws:

- - FMC PS ActFMC PS Act

- IA PC Act- IA PC Act

- - PFI ActPFI Act

New Policy Paper, Strategies, OrdinanceNew Policy Paper, Strategies, Ordinance, etc., etc.

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Main tasks of the second stage of the Main tasks of the second stage of the reformreform

Strengthening managerial accountability and financial management and control (FMC)

Establishment of internal audit units (IAU) within public sector organizations

Establishment of Central Harmonization Units for FMC and IA

Separation of internal audit and financial inspection Transformation of the Public Internal Financial

Control Agency (PIFCA) into a Public Financial Inspection Agency (PFIA)

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CURRENT INTERNAL AUDIT SYSTEMCURRENT INTERNAL AUDIT SYSTEMMAIN CHARACTERISTICSMAIN CHARACTERISTICS

Internal Auditors work in compliance with Internal Auditors work in compliance with National IA Standards, Code of Ethics, National IA Standards, Code of Ethics, Methodology, issued by Minister of FinanceMethodology, issued by Minister of Finance

Mandatory setting up of IAU in Ministries; Mandatory setting up of IAU in Ministries; Larger Municipalities; Other state organizationsLarger Municipalities; Other state organizations

Minister of Finance is responsible for IA Minister of Finance is responsible for IA coordination and harmonization-CHUcoordination and harmonization-CHU

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CURRENT INTERNAL AUDIT SYSTEMCURRENT INTERNAL AUDIT SYSTEM StatisticsStatistics........

Total number of internal audit units – 211Total number of internal audit units – 211

In Ministries and central administration – 15 / 29In Ministries and central administration – 15 / 29

In Municipalities – 167 from 264 totalIn Municipalities – 167 from 264 total

Average number of internal auditors in Ministries - 7Average number of internal auditors in Ministries - 7

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CURRENT INTERNAL AUDIT SYSTEMCURRENT INTERNAL AUDIT SYSTEM StatisticsStatistics........

Average number of internal auditors in Average number of internal auditors in municipalities – 1-2municipalities – 1-2

Annual average number of assurance audit Annual average number of assurance audit engagements engagements

in Ministries – 18in Ministries – 18in Municipalities – 6in Municipalities – 6

Annual average number of consultancy audit Annual average number of consultancy audit engagements engagements

in Ministries – 15in Ministries – 15in Municipalities - 2in Municipalities - 2

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CHU IA and CHU FMCCHU IA and CHU FMCStructure and StatusStructure and Status

Divisions of Internal Control DirectorateDivisions of Internal Control Directorate

Basic ICD role: provides assistance to the Minister of Basic ICD role: provides assistance to the Minister of Finance in respect to the coordination and harmonization Finance in respect to the coordination and harmonization of FMC and IA in the public sectorof FMC and IA in the public sector

Subordinated to the Minister of FinanceSubordinated to the Minister of Finance

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CHU IA AND CHU FMC MAIN ACTIVITIES(1):CHU IA AND CHU FMC MAIN ACTIVITIES(1):

Development of methodologyDevelopment of methodology

FMCFMC

-Guidelines on the FMC -Guidelines on the FMC componentscomponents

-Instructions on the implementation -Instructions on the implementation of the managerial accountabilityof the managerial accountability

-Instruction of the performance of -Instruction of the performance of ex-ante controlex-ante control

-Guidelines on the implementation -Guidelines on the implementation of the risk management processof the risk management process

IAIA

IA MANUALIA MANUAL: : - Management of the internal - Management of the internal

audit activity audit activity ((vol.vol. I)I)- Audit engagement (vol.- Audit engagement (vol. ІІ ІІ))- Audit tools and instruments - Audit tools and instruments

(vol.(vol. ІІІ ІІІ))

Short methodology for external Short methodology for external quality assessmentquality assessment

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MAIN ACTIVITIES(2):MAIN ACTIVITIES(2):

Training Training

FMCFMC

- FMC -main requirements, FMC -main requirements, annual reportingannual reporting

- Risk Management in the public - Risk Management in the public sectorsector

IAIA

- Training for the IA CertificateTraining for the IA Certificate

- External quality assessment of External quality assessment of the IA activitythe IA activity

- Cases on assurance Cases on assurance engagements and consultancy engagements and consultancy engagementsengagements

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MAIN ACTIVITIES(3):MAIN ACTIVITIES(3):

Exam Exam ““Internal Auditor in the Public Sector CertificateInternal Auditor in the Public Sector Certificate””

Ordinance of the Minister of FinanceOrdinance of the Minister of Finance

IC Directorate is responsible for:IC Directorate is responsible for:- Organization of the examOrganization of the exam- Carrying out the examCarrying out the exam

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CHU IA AND CHU FMC MAIN ACTIVITIES(4):CHU IA AND CHU FMC MAIN ACTIVITIES(4):

Annual reporting Annual reporting

FMCFMC

Questionnaires of the condition Questionnaires of the condition of the FMC system (incl. self of the FMC system (incl. self asssessment) and annual reports- asssessment) and annual reports- prepared by PS organizationprepared by PS organization

CHU FMC prepares annual report CHU FMC prepares annual report on the condition of the financial on the condition of the financial management and control in management and control in the public sectorthe public sector

CONSOLIDATED ANNUAL REPORTCONSOLIDATED ANNUAL REPORT

IAIA

Questionnaire of the of the IA activity Questionnaire of the of the IA activity and annual report-prepared by IA Units of PSand annual report-prepared by IA Units of PS

CHU IA prepares annual report on the CHU IA prepares annual report on the IA activity IA activity in the public sectorin the public sector

FOR THE INTERNAL CONTROLFOR THE INTERNAL CONTROL

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MAIN ACTIVITIES(5):MAIN ACTIVITIES(5): System monitoring System monitoring

WHAT : On the spot monitoring on the implementation of the FMC PS Act, WHAT : On the spot monitoring on the implementation of the FMC PS Act, IA PS Act and other secondary regulationsIA PS Act and other secondary regulations

WHY: UWHY: Updating of the methodologypdating of the methodology

WHERE: MiWHERE: Ministries and nistries and MMunicipalitiesunicipalities

FMCFMC

Monitoring on the implementation Monitoring on the implementation of the FMC PS Act and other of the FMC PS Act and other secondary regulationssecondary regulations

IAIA

NOT? NOT? Monitoring on the implementation Monitoring on the implementation of the IA PS Act and other secondary of the IA PS Act and other secondary regulationsregulations

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MAIN ACTIVITIES(6):MAIN ACTIVITIES(6):

NEW(2012) : NEW(2012) : External quality assessment of the IA activityExternal quality assessment of the IA activity Ordinance of the Minister of FinanceOrdinance of the Minister of Finance

Short methodology Short methodology

4 reports (3 Ministries and 1 Agency) 4 reports (3 Ministries and 1 Agency) 3 new assessments (2 Ministries and 1 Agency)3 new assessments (2 Ministries and 1 Agency)

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MAIN PROBLEMS IN THE CURRENT MAIN PROBLEMS IN THE CURRENT SYSTEMSYSTEM

Not sufficient IA staffNot sufficient IA staff

Head of IAU position is vacant in some Head of IAU position is vacant in some organizationsorganizations

Commissioning of untypical audit tasksCommissioning of untypical audit tasks

Too huge “audit universe” Too huge “audit universe”

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CHALLENGESCHALLENGES

Sustainable developmentSustainable development Improvement the capacityImprovement the capacity Enhance professional competence of IAEnhance professional competence of IA Attract young people to the IA professionAttract young people to the IA profession Improve the understanding of the heads of Improve the understanding of the heads of

organizationsorganizations

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THANK YOU FOR YOUR THANK YOU FOR YOUR ATTENTION !ATTENTION !