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Public sector: internal audit's critical role

By Ian Peters, CEO of the IIA | 6th May 2016

Public sector: internal audit's critical role

An interesting article on how internal audit plays a critical role in the public sector division, creating a solid platform to develop the changes in service delivery structure and procedure written by Ian Peters CEO of the IIA. 

This article was published by auditandrisk.org.uk

The new public sector internal audit standards create a solid platform for the development of the profession at a time of immense change in service delivery, governance structures and processes, writes Ian Peters, CEO of the IIA.

11 November 2013 @ 09:00 in CEO Blog.

Improving the effectiveness of the profession in the public sector is a key strand of the institute’s policy work. We worked closely with the internal audit standards setters on an initiative to develop and launch new public sector internal audit standards (PSIAS).

Effective from April this year (see Audit & Risk March/April 2013, page 3), these “standards” add sector-specific guidance on the application of the IIA’s International Standards. They are designed to create consistency for the practice of internal audit across the public sector and establish the basis for its quality assurance.

Like our new financial services sector guidance, published in July, the effectiveness of the PSIAS is dependent on boards, audit committees, chief executives and accounting officers not only implementing them but also harnessing internal audit more effectively.

This requirement was exposed by the National Audit Office (NAO) in its June 2012 report on the effectiveness of internal audit in central government. The report highlighted the need for greater emphasis on the importance of internal audit’s role, alongside a “determined” move to deliver its full potential across government. PSIAS create a solid platform for the development of the profession at a time of immense change in service delivery, governance structures and processes. 

Lord Browne’s latest annual report on his initiative to improve the effectiveness of government departmental boards, driven by the Cabinet Office, highlights that the focus on both the management of risk and the quality of information used to make strategic decisions about change is improving. These are areas where internal audit can play a critical role in supporting the board’s oversight of objective setting, strategy development and implementation.

These developments are all good news for internal audit. But my concern is that the ability of the profession to respond to the challenges it faces as a result of these higher expectations is being constrained by a lack of resources.

Our new annual survey of heads of internal audit (HIAs) shows that a net figure of 25 per cent of private sector organisations are increasing their internal audit budgets, while public sector HIAs – 18 per cent net – are facing decreases.

Public sector HIAs recognise that a key challenge for them is to deliver efficiently. But cutting internal audit budgets at a time of significant change in the public sector carries risks. Cuts are a false economy if they lead to public money being wasted as a consequence of inadequate reporting, weak challenge on the management of risk and insufficient scrutiny of processes for collecting data for decision making. 

The delivery of major projects is a case in point. The NAO recently reported on the Department for Work and Pensions’ project to implement Universal Credit, highlighting failings of planning and management which led to the write-off of £34m of IT work. A report into the causes of the failures by the Major Projects Authority stated that most of the recommendations made by internal audit had not been implemented. In its latest annual report it highlighted the disconnect between project policy and delivery within departments, which sees objectives being set without proper attention to critical planning, resource allocation and governance arrangements.

So, if government wants to avoid wasting huge sums of money, perhaps it should consider at least maintaining its investment in the function that can tell it how effective its controls and processes are.