INTERNAL AUDIT IN BULGARIA DEVELOPMENTS AND CHALLENGES PEM

INTERNAL AUDIT IN BULGARIA – DEVELOPMENTS AND CHALLENGES PEM PAL IA Co. P Sofia, Bulgaria April 17 -20, 2012 1

CONTENT n n Reform of the national PIFC system Current Internal Audit system Setting-up and development of CHU Problems and challenges 2

SOME HISTORY … Factors caused the changes: n n n Engagements taken under Chapter 28 Financial Control SIGMA peer reviews on the PIFC system recommendations Twinning projects with France, Spain and Germany 3

FIRST STAGE OF THE REFORM : 2001 -2006 TRANSITIONAL PERIOD FROM INSPECTION TO INTERNAL AUDIT n n n - Policy paper New Law Trainings Manual Key problems: Centralized IA system Internal Audit was merged with Inspection – internal auditors impose sanctions 4

Inspection n n n ex post checks - mainly yes/no - for law compliance from outside (Mo. F) of financial activities focused on individuals aim: detecting violations and imposing sanctions reviewing for the past to assure financial and budgetary discipline Internal Auditing n n n ex post checks for assurance, but also consulting from inside of all activities focused on systems aim: assessing internal control systems and recommending improvements reviewing for the future to help management 5

SECOND STAGE OF THE REFORM n Three new Laws: - FMC PS Act - IA PC Act - PFI Act n New Policy Paper, Strategies, Ordinance, etc. 6

Main tasks of the second stage of the reform n n n 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) 7

CURRENT INTERNAL AUDIT SYSTEM MAIN CHARACTERISTICS n n n Internal Auditors work in compliance with National IA Standards, Code of Ethics, Methodology, issued by Minister of Finance Mandatory setting up of IAU in Ministries; Larger Municipalities; Other state organizations Minister of Finance is responsible for IA coordination and harmonization-CHU 8

CURRENT INTERNAL AUDIT SYSTEM Statistics. . n Total number of internal audit units – 211 n In Ministries and central administration – 15 / 29 n In Municipalities – 167 from 264 total n Average number of internal auditors in Ministries - 7 9

CURRENT INTERNAL AUDIT SYSTEM Statistics. . n n n Average number of internal auditors in municipalities – 1 -2 Annual average number of assurance audit engagements in Ministries – 18 in Municipalities – 6 Annual average number of consultancy audit engagements in Ministries – 15 in Municipalities - 2 10

CHU IA and CHU FMC Structure and Status n n n Divisions of Internal Control Directorate Basic ICD role: provides assistance to the Minister of Finance in respect to the coordination and harmonization of FMC and IA in the public sector Subordinated to the Minister of Finance 11

CHU IA AND CHU FMC MAIN ACTIVITIES(1): Development of methodology n FMC n IA IA MANUAL: - Management of the internal audit activity (vol. I) -Instructions on the implementation - Audit engagement (vol. ІІ) of the managerial accountability - Audit tools and instruments (vol. ІІІ) -Instruction of the performance of ex-ante control Short methodology for external quality assessment 12 -Guidelines on the implementation of the risk management process -Guidelines on the FMC components

MAIN ACTIVITIES(2): Training n - FMC -main requirements, annual reporting n IA - Training for the IA Certificate - - Risk Management in the public sector - External quality assessment of the IA activity Cases on assurance engagements and consultancy engagements 13

MAIN ACTIVITIES(3): Exam “Internal Auditor in the Public Sector Certificate” n n - Ordinance of the Minister of Finance IC Directorate is responsible for: Organization of the exam Carrying out the exam 14

CHU IA AND CHU FMC MAIN ACTIVITIES(4): Annual reporting n FMC Questionnaires of the condition of the FMC system (incl. self asssessment) and annual reportsprepared by PS organization CHU FMC prepares annual report on the condition of the financial management and control in the public sector n IA Questionnaire of the IA activity and annual report-prepared by IA Units of PS CHU IA prepares annual report on the IA activity in the public sector CONSOLIDATED ANNUAL REPORT FOR THE INTERNAL CONTROL 15

MAIN ACTIVITIES(5): System monitoring WHAT : On the spot monitoring on the implementation of the FMC PS Act, IA PS Act and other secondary regulations WHY: Updating of the methodology WHERE: Ministries and Municipalities n FMC Monitoring on the implementation of the FMC PS Act and other secondary regulations n IA NOT? Monitoring on the implementation of the IA PS Act and other secondary regulations 16

MAIN ACTIVITIES(6): NEW(2012) : External quality assessment of the IA activity n Ordinance of the Minister of Finance n Short methodology n n 4 reports (3 Ministries and 1 Agency) 3 new assessments (2 Ministries and 1 Agency) 17

MAIN PROBLEMS IN THE CURRENT SYSTEM n n Not sufficient IA staff Head of IAU position is vacant in some organizations n Commissioning of untypical audit tasks n Too huge “audit universe” 18

CHALLENGES n n n Sustainable development Improvement the capacity Enhance professional competence of IA Attract young people to the IA profession Improve the understanding of the heads of organizations 19

THANK YOU FOR YOUR ATTENTION ! 20