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Module 5

INTERNAL AUDIT

By the End of this module you would


know

What is Internal Auditing


What is the role of the Internal Auditing
What is the methodology of Internal Audit
What is Governance Process Evaluation
What are Internal Controls
How is Internal Audit reported

Auditing Concept

Causing delays

Independent
Prepayment
Compliance Checks

External Audit
Certification
of Financial
Statements
Audit of
Receipts
Compliance
with Rules and
Regulations

Pre-Audit

Internal Audit
System Review
Strengthening of Internal
Checks
Performance Evaluation
Efficiency
Economy
Effectiveness

(GRADUAL ELIMINATION)

INTERNAL AUDITING
Internal auditing is an independent, objective assurance
and consulting activity designed to add value and
improve a Local Governments operations.
Internal auditing helps a Local Government accomplish
its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of
risk management, control, and governance processes.

Council
Monitoring
Committees
Accounts
Committee
Auditor
General

District
Ombudsman

Complaint
Cell
District
Data
Office

Copies
Public Document

Annual
AnnualAppraisal
Appraisalofof
Local
LocalGovernment
Government

Information

Citizens
Social
Audit
Other
Offices

Other
Sources

Governance
Process
Evaluation

Nazim

Internal Auditor

Periodical
PeriodicalInternal
Internal
Audit
AuditofofOffices
Offices

PerforInternal
mance
Controls
Audit Assessment

Special
Special
Investigation
Investigation

Systems
Review

Info
Systems
Audit

THE INTERNAL AUDITOR

There shall be an Internal Auditor for each of


the District Government and Tehsil / Town
Municipal Administration
The general direction and administration of his
office, and its affairs shall vest in him
The Internal Auditor shall exercise all powers,
perform all functions and do all acts without
any outside interference
The Internal Auditor shall be answerable
directly to the Nazim
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INTERNAL AUDIT METHODOLOGY

The Internal Audit Office shall


execute its functions mainly in three
domains:
Annual appraisal for Local
Government
Periodic audit of the offices and
Special Investigation
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INTERNAL AUDITING PRINCIPLES


AND STANDARDS

Independence
Planning Materiality
Professional Proficiency
Staffing
Knowledge, Skills, and Disciplines
Performance Evaluation
Supervision
Due Professional Care
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SCOPE OF GOVERNANCE
PROCESS EVALUATION
The Internal Auditor undertakes the evaluation of:

Regulatory framework
Citizens service
Morale of executives and staff
Value system of executives
Office culture
Goal setting
Incentive mechanism
Communication system
Organisational structure
Staff competence levels
Managerial follow-ups
Accountability

PERFORMANCE AUDIT
A. Evaluation of Performance Management
System (PMS)
B. Quality of Data used by PMS
C. Linkage of Government Performance with
Employees Appraisal
D. Incentive Mechanisms

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INTERNAL CONTROL ASSESMENT

The responsibility of setting the internal


controls shall be that of the Executives
and Officers of the Local Government
offices.
The role of the internal Auditor shall be
limited to the assessment of the existing
internal controls and to suggest
improvements where controls are
deficient in any manner.
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Assessment Methodology
5 Phases

Identification of the systems in which the


controls are in operation,
Testing the Control Environment in which
controls operate,
Assessment of risks relating to controls,
Testing the control activities which relate to the
examination of the controls in existence,
To inspect the monitoring activities of the
Executives.
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INFORMATION SYSTEMS AUDIT


Objectives

Ensure the proper security of information and its


dependability on other related databases
Evaluate the strengths of existing controls to restrict
the physical and logical access to the information and
computers
Ensure the preventive measures for the smooth
operations of all time critical applications
Assist the management in improvement controls
where existing controls are weak
Ensure that the cost of the controls does not rise
above the benefit derived from them
Ensure the prevention from any misuse, fraud and
loss of assets
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SPECIAL INVESTIGATION
While conducting the special
investigations in any office or covering two
or more offices, the investigator shall plan
the investigation process, collect the
evidence, identify the suspects and report
the findings to the Nazim or committee
concerned.

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Do You Know
Who is responsible for setting the internal
controls in Local Government offices
How is Information System Audit carried
out
What are the elements of Performance
Audit
Why does the audit team assess the
morale, ethical practices, discipline and
efficiency of office executives
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