WELCOME INTERNAL AUDIT Internal Audit Parimal Paul DirectorAdministration

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WELCOME INTERNAL AUDIT

WELCOME INTERNAL AUDIT

Internal Audit Parimal. Paul Director(Administration)

Internal Audit Parimal. Paul Director(Administration)

Some conditions Do not make any noise in the class. n Do not ask

Some conditions Do not make any noise in the class. n Do not ask any question during presentation except on the instruction of the faculty. n Do not gossip in the class and maintain silence in the class. n If you do not feel any interest you may go out of the class. n

Continued___ n Questions may be asked only after the presentation. n Please sign the

Continued___ n Questions may be asked only after the presentation. n Please sign the Attendance Register. n Please fill up the “Training Feedback Form ”

About Internal Audit

About Internal Audit

Internal Audit Definition of Internal Audit: “An internal audit is an audit conducted by

Internal Audit Definition of Internal Audit: “An internal audit is an audit conducted by business, organization for the purpose of improving the business operation”. Improvement is fundamental to the purpose of internal Auditing.

Internal Audit According to the Institute of Internal Auditors (ITA): “Internal Audit means an

Internal Audit According to the Institute of Internal Auditors (ITA): “Internal Audit means an independent, objective assurance and consulting activity deigned to add value and improve an organization’s operation. It helps an organization to accomplish its objectives by bingeing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process. ” “

What is Internal Audit n Is it Management Audit n Is it Efficiency Audit

What is Internal Audit n Is it Management Audit n Is it Efficiency Audit n Is it Performance Audit n Is it Propriety Audit n Is it Operations Audit n Is it System Audit

Features of Internal Audit n n n Internal Independent Assurance and Consulting Activity Designed

Features of Internal Audit n n n Internal Independent Assurance and Consulting Activity Designed to add value Improve an organisation’s operations Accomplish objectives Systematic, disciplined approach Evaluate and Improve Effectiveness Risk management, control and governance processes

Scope of Internal Audit n Reliability and integrity of financial and operational information. n

Scope of Internal Audit n Reliability and integrity of financial and operational information. n Effectiveness and efficiency of operations. n Safeguarding of assets. n Compliance with laws,

Internal Auditors n Integral to Good Corporate Governance n Governance = Accountability

Internal Auditors n Integral to Good Corporate Governance n Governance = Accountability

Indian Initiatives - Corporate Governance n n Desirable Code of Corporate Governance CII (1998).

Indian Initiatives - Corporate Governance n n Desirable Code of Corporate Governance CII (1998). Kumar Manglam Birla Committee Report SEBI (2000) n Companies (Amendment) Act, 2000 n Ganguly Committee Report-RBI (2002) n n Naresh Chandra Committee Report-DCA (2002) Narayan Murthy Report - SEBI (2003)

Good Corporate Governance n Good corporate governance is the “right thing to do”, but

Good Corporate Governance n Good corporate governance is the “right thing to do”, but improved shareholder returns helps to justify the cost. n Good corporate governance applies to all companies/organisations no matter where they are located. n Good corporate governance needs to be principle based rather than rule

Core Attributes of Corporate Governance n Discipline n Transparency n Independence n Accountability n

Core Attributes of Corporate Governance n Discipline n Transparency n Independence n Accountability n Responsibility n Fairness or equitable treatment n Social responsibility

Evolution of Internal Auditing (1947) Internal Auditing, “……. deals primarily with accounting matters but

Evolution of Internal Auditing (1947) Internal Auditing, “……. deals primarily with accounting matters but may properly deal with matters of an operating nature”. n (1957) Internal Auditing is, “…. . the review of accounting, financial and other operations”. n

Evolution of Internal Auditing (1971) Internal Auditing is, “……the review of operations as a

Evolution of Internal Auditing (1971) Internal Auditing is, “……the review of operations as a service to management”. (1981) Internal Auditing is an independent appraisal function established within the organisation of examine and evaluate its activities as a service to the oganisation.

Evolution of Internal Auditing (2002) “Internal Auditing is an independent, objective assurance and consulting

Evolution of Internal Auditing (2002) “Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and

Range of Activities n Reviewing and appraising (Accounting/Finance/Operation al controls) n Promoting effective controls

Range of Activities n Reviewing and appraising (Accounting/Finance/Operation al controls) n Promoting effective controls at reasonable cost n Extent of compliance (Laws/Regulations/Policies/plan s/procedures)

Range of Activities (Contd. ) n Assets are safeguarded and accounted n Reliability of

Range of Activities (Contd. ) n Assets are safeguarded and accounted n Reliability of management data developed within oganisation n Appraising quality of performance in carrying out assigned responsibilities n Recommending operating

Purpose of Internal Audit n Basic weaknesses of an organisation n Functions n Systems

Purpose of Internal Audit n Basic weaknesses of an organisation n Functions n Systems n External or internal relationships

Purpose of Internal Audit(Contd. ) n Incompatibility, inadequacy, contradiction, invalidity, inconsistency n Objectives n

Purpose of Internal Audit(Contd. ) n Incompatibility, inadequacy, contradiction, invalidity, inconsistency n Objectives n Strategy n Policy n Plan n Approach

Benefits of Internal Audit Renewed vigour n Greater efficiency n Higher effectiveness n Better

Benefits of Internal Audit Renewed vigour n Greater efficiency n Higher effectiveness n Better quality n Reduction of waste n Higher productivity n Problems to be tackled n Low Productivity n High cost n Low competitive strength n

Who Should conduct Internal Audit n Department n Chartered Accountant in Practice n Management

Who Should conduct Internal Audit n Department n Chartered Accountant in Practice n Management Consultant

Qualifications of Internal Auditor Chartered Accountant n Cost Accountant n Master in Business Administration

Qualifications of Internal Auditor Chartered Accountant n Cost Accountant n Master in Business Administration n Engineer n n Systems Analyst

The Challenge or the Answer? n Offering assurance about the control system is challenging,

The Challenge or the Answer? n Offering assurance about the control system is challenging, especially when such assurances have not been offered previously. n It can go against IA’s instincts to offer any overall conclusions about the entire organisation, and audit resources are always limited.

(Contd. ) n In the wake of Enron, World. Com and other recent financial

(Contd. ) n In the wake of Enron, World. Com and other recent financial reporting disasters though, these are just the services that more and more boards are demanding from internal auditing. n Whether or not to judge the appropriateness of organisation's objectives or the Board’s Strategies to achieve them.

Whom Internal Auditor should Report Managing Director n Board of Directors n Chairman n

Whom Internal Auditor should Report Managing Director n Board of Directors n Chairman n Audit Committee n Secretary (Ministry) n C&AG n DAI n DGAC n

Objectives of Internal audit n n PROPER CONTROL: The purpose of internal audit is

Objectives of Internal audit n n PROPER CONTROL: The purpose of internal audit is to keep proper control over business activities, when there is proper control there is maximum efficiency. ACCOUNTING SYSTEM: The purpose of internal audit is to evaluate the accounting system. It is concerned with checking proper authority for transactions like purchase, retirement and disposal of fixed assets.

(Contd. ) n n n HELP MANAGEMENT: The purpose of internal audit is to

(Contd. ) n n n HELP MANAGEMENT: The purpose of internal audit is to help management by pointing out the weakness. WORKING REVIEW: The purpose of internal audit is to review the working of business with a view to locate the points. ASSET PROTECTION: The purpose of internal audit is to protect the assets. The proper record of assets must be there. Internal auditor can examine the valuation, verification and possession.

(Contd. ) n n INTERNAL CHECK: The purpose of internal audit is to evaluate

(Contd. ) n n INTERNAL CHECK: The purpose of internal audit is to evaluate the internal check system. FAIR STATEMENTS: The purpose of internal audit is to present a true and fair view of the financial statements by adopting the accounting principles

(Contd. ) n CHECK ERRORS: The purpose of internal audit is to detect the

(Contd. ) n CHECK ERRORS: The purpose of internal audit is to detect the errors in accounting records by through scrutiny and checking and rectify mistakes to prepare accounts at the end of the year in order to help the external auditor. n DETECT FRAUDS: The purpose of internal audit is to detect frauds in the books of accounts. As the work of internal audit starts after the work of Accounting staff remains alert because there is no time gap between recoding and checking. Thus detection of fraud is possible.

(Contd. ) n n DETERMINE LIABILITIES: The purpose of internal audit is to determine

(Contd. ) n n DETERMINE LIABILITIES: The purpose of internal audit is to determine liabilities of employees. The duties are divided among the staff. It is easy to note the negligence on the part of employees. The internal audit can pinpoint the person responsible for carelessness. HELP INDEPENDENT AUDIT: The purpose of internal audit is to help an independent audit. The external auditor can rely on internal auditor and there is no need of cent percent checking. In this way there is saving of time and money due to internal audit.

(Contd. ) q PERFORMANCE APPRAISAL: The purpose of internal audit is to check the

(Contd. ) q PERFORMANCE APPRAISAL: The purpose of internal audit is to check the performance of appraisal. The management must achieve the targets fixed in budgets and plans. The internal audit is a tool to evaluate the working of each management function. q PROVIDE SUGGESTIONS: The purpose of internal audit is to provide suggestions for improvement of business activities. .

(Contd. ) n n NEW IDEAS: The purpose of internal audit is to seek

(Contd. ) n n NEW IDEAS: The purpose of internal audit is to seek new ideas relating to products, marketing, finance and other business matters. The internal audit staff can provide new ideas about various business matters. The viable ideas can be put into practice for the benefit of the business. USE OF RESOURCES: The purpose of internal audit is to determine the proper use of resources. The misuse of resources can increase the cost of doing business. The proper use of resources

(Contd. ) q ACCOUNTING POLICIES: The purpose of internal audit is to examine the

(Contd. ) q ACCOUNTING POLICIES: The purpose of internal audit is to examine the accounting policies. The understanding of accounting system and procedure is helpful to devise the effective audit plans and procedures. The internal auditor may find some weakness in the internal control. He can comment on accounting policies. q SPECIAL INVESTIGATION: The purpose of internal audit may be to conduct special investigation about any business matter. Internal audit can be used as a tool to note the effectiveness of management function.

Role of Internal Auditor Role of Internal Audit include, monitoring assessing, analyzing organizational risk

Role of Internal Auditor Role of Internal Audit include, monitoring assessing, analyzing organizational risk and control, and reviewing and confirming information and compliance with policies, procedures and laws and provide the executive management assurance that risks are mitigated and organization’s corporate governance is strong and effective. And, when there is room for improvement, internal auditors make recommendations for enhancing the possesses, policies and

International Scenario Institute of Internal Auditors The function of this institute is to ensure

International Scenario Institute of Internal Auditors The function of this institute is to ensure that an organization meets its objectives through a systematic, disciplined objective approach for evaluating and improving the effectiveness of risk management, control and governance.

Standards of the Institute of Internal Auditors Standards are the criteria by which the

Standards of the Institute of Internal Auditors Standards are the criteria by which the operations of an internal auditing department are evaluated and measured. The procedures listed above should reflect the implementation of the standards. n 100 Independence – Internal auditors should be independent of the activities they audit. This is accomplished through organizational status (the direct reporting relationship to the Board) and objectivity in performing audits.

 ) n 200 Professional Proficiency – Internal audits should be performed with proficiency

) n 200 Professional Proficiency – Internal audits should be performed with proficiency and due professional care. Internal auditors should comply with professional standards of conduct; they should possess the knowledge, skills, and disciplines essential to the performance of internal audits. Internal auditors should be skilled in dealing with people and in communicating effectively; they should maintain their technical competence through continuing education.

 (Contd. ) n Internal auditors should exercise due professional care in performing audits.

(Contd. ) n Internal auditors should exercise due professional care in performing audits. This calls for the application of the care and skill expected of a reasonably prudent and competent internal auditor in the same or similar circumstances; it implies reasonable care and competence, not infallibility or extraordinary performance.

 (Contd. ) n 300 Scope of Work – The scope of the internal

(Contd. ) n 300 Scope of Work – The scope of the internal audit should encompass the examination and evaluation of the adequacy and effectiveness of the organization’s system of internal control and the quality of performance in carrying out assigned responsibilities.

 (Contd. ) The objectives of internal control are: n The reliability and integrity

(Contd. ) The objectives of internal control are: n The reliability and integrity of information. n Compliance with policies, plans, procedures, laws, and regulations. n The safeguarding of assets. n The economical and efficient use of resources. n The accomplishment of established objectives and goals for operations and

 (Contd. ) n 400 Performance of Audit Work – Audit work should include

(Contd. ) n 400 Performance of Audit Work – Audit work should include planning the audit, collecting, analyzing, interpreting, and documenting information to support audit results, communicating results, and following up to ascertain that appropriate action is taken on reported audit findings.

 (Contd. ) n 500 Management of the Internal Audit Department – The Director

(Contd. ) n 500 Management of the Internal Audit Department – The Director of Internal Audit (i. e. , Internal Auditor) should properly manage the department so that audit work fulfills its approved general purposes and responsibilities and that the audit work conforms to the Standards for the Professional Practice of Internal Auditing. )

Indian scenario Standards on Internal Audit Institute of chartered Accountants of India have issued

Indian scenario Standards on Internal Audit Institute of chartered Accountants of India have issued the following Standards on Internal Audit (SIA): SIA-1: Planning an Internal Audit SIA-2: Basic Principles governing Internal Audit SIA-3: Documentation

 (Contd. ) SIA-4: Reporting SIA-5: Sampling SIA-6: Analylitical procedure SIA-7: Quality Assurance in

(Contd. ) SIA-4: Reporting SIA-5: Sampling SIA-6: Analylitical procedure SIA-7: Quality Assurance in Internal Audit SIA-8: Terms of Internal Audit engagements SIA-9: Communication with Management SIA-10: Internal Audit evidence SIA-11: Consideration of fraud in an

 (Contd. ) SIA-12: Internal Control evaluation SIA-13: Enterprise risk Management SIA-14: Internal Audit

(Contd. ) SIA-12: Internal Control evaluation SIA-13: Enterprise risk Management SIA-14: Internal Audit in IT environment SIA-15: Knowledge of the entity and its environment. SIA-16: Using the work of an expert SIA-17: Consideration of laws and Regulation in an Internal Audit SIA-18: Related parties.

Different Types of Internal Audit n A. The Internal Auditor may perform the following

Different Types of Internal Audit n A. The Internal Auditor may perform the following different types of audits: Full Audit – Normally, full audits are required when an area has never been audited before, or significant changes have occurred subsequent to the last audit. A full audit requires completion of all of the following phases:

 (Contd. ) ÿ ÿ ÿ Preliminary Survey and Planning System Documentation Internal Control

(Contd. ) ÿ ÿ ÿ Preliminary Survey and Planning System Documentation Internal Control Evaluation Audit Program Audit Testing Reports and Conferences

 (Contd. ) B. General Audit – A general audit usually does not require

(Contd. ) B. General Audit – A general audit usually does not require the completion of all the phases of a full audit. The topics are usually conducted year after year and tend to require the same testing. There is no need to fully document the system and consider the impact of internal controls again. It is only necessary to ensure that the system has not drastically changed

 (Contd. ) C. Spot Audit – A spot audit a periodic audit of

(Contd. ) C. Spot Audit – A spot audit a periodic audit of a particular transaction at a particular point in time which gives reasonable assurance that controls in place are still working. Results of spot audits may help determine if a full audit should be scheduled. Examples are: an inventory location test, a surprise cash count, or an unannounced payroll distribution.

 ) D. Situational Audit – A situational audit is narrower in scope than

) D. Situational Audit – A situational audit is narrower in scope than a full audit. It is usually an unanticipated project that may take priority over a planned audit. The focus is usually based on a previously identified specific control weakness, or the likelihood that a weakness not readily identifiable exists. Examples are: a management or Board requested special project, an integrity or fraud related issue.

 ) E. Follow – up Audit – The focus of a follow –

) E. Follow – up Audit – The focus of a follow – up audit is to contact the audited department to determine if previously agreed to recommendations have been implemented. The follow – up audit may require additional testing to ensure that controls are working and effective as anticipated. An attempt should be made to conduct a timely follow-up audit if a previous audit uncovered serious control issues.

 (Contd. ) F. Opinion – An opinion may be required regarding a specific

(Contd. ) F. Opinion – An opinion may be required regarding a specific issue, procedure, or task. It is part of Internal Audit’s responsibilities to provide counsel to management. Providing a professional opinion requires fact-finding research such as reading authoritative texts, holding discussions with key staff, and reviewing results of previous audits as applicable.

 (Contd. ) According to Malaysian Institute of Accountants the essentials for effective internal

(Contd. ) According to Malaysian Institute of Accountants the essentials for effective internal auditing are: A. Independence n The internal auditor should have the independence in terms of organizational status and personal objectivity which permits the proper performance of his duties.

 (Contd. ) B. Staffing and training n The internal audit unit should be

(Contd. ) B. Staffing and training n The internal audit unit should be appropriately staffed in terms of numbers, grades, qualifications and experience, having regard to its responsibilities and objectives. The internal auditor should be properly trained to fulfill all his responsibilities (Paragraphs 15 to 26).

 (Contd. ) C. Relationships n The internal auditor should seek to foster constructive

(Contd. ) C. Relationships n The internal auditor should seek to foster constructive working relationship and mutual understanding with management, with external auditors, with any other review agencies and, where one exist, the audit committee (paragraphs 27 to 37). D. Due care n The internal auditor should exercise due care in fulfilling his responsibilities (paragraphs 38 to 44).

 ) E. Planning, controlling and recording n The internal auditor should adequately plan,

) E. Planning, controlling and recording n The internal auditor should adequately plan, control and record his work (paragraphs 45 to 58). F. Evaluation of the internal control system n The internal auditor should identify and evaluate the organization’s internal control system as a basis for reporting upon its adequacy and effectiveness (paragraphs 59 to 62).

 (Contd. ) G. Evidence n The internal auditor should obtain sufficient, relevant and

(Contd. ) G. Evidence n The internal auditor should obtain sufficient, relevant and reliable evidence on which to base reasonable conclusions and recommendations (paragraphs 63 to 69). H. Reporting and follow-up n The internal auditor should ensure that findings, conclusions and recommendations arising from each internal audit assignment are communicated promptly to the appropriate level of management and he should actively seek a response. He should ensure that arrangements are made to follow up audit recommendations to monitor what action has been taken on them (paragraphs 70 to 78).

Internal Audit in the Office of the Director General of Audit, Central, Kolkata n

Internal Audit in the Office of the Director General of Audit, Central, Kolkata n The Internal Audit wing of the Office of the Director General of Audit, Central, Kolkata is of great importance as it provides an independent source of information and the factual position of the work in the office. It helps him to gauge the efficiency and effective working system and cause to direct any remedial measures that may be required for improving the quality and quantum of wok in various sections.

 ) n Thus the main purpose of internal audit is to see how

) n Thus the main purpose of internal audit is to see how far the auditing /Administration sections of the office are following the procedural rules and regulations, the prescribed percentage for Original Audit as well as Current Review, maintaining the various registers that have been prescribed, submitting the returns on due dates and generally functioning as efficient units of the office.

 (Contd. ) n The internal audit calls for an intelligent scrutiny of the

(Contd. ) n The internal audit calls for an intelligent scrutiny of the works done in the various auditing sections and should therefore generally be entrusted to senior staff who are expected not only to detect defects and irregularities but also to suggest improvement in procedure (Refer Chapter 17 – Manual of Standing Orders (Audit) (First Edition) (1991) and Annexure thereto).

 (Contd. ) n The Internal Audit Section should also check the quality of

(Contd. ) n The Internal Audit Section should also check the quality of audit work done and comment specifically on this aspect in their reports with a view to taking suitable steps to improve the quality of work where needed.

 (Contd. ) n The Internal Audit Section is not intended to do and

(Contd. ) n The Internal Audit Section is not intended to do and should not be saddled with other work and should be under the direct charge of the Head of Office/or one of his Deputies. Its functions are analogous to those of the Principal Director (Inspection). It can usefully supplement the work of the Principal director (Inspection) and also serve as a liaison between him and the Audit Office in pursuing the objections raised by him till their final settlement and by issuing instructions to see that the

Programme of Internal Audit n The programme of internal audit should be so arranged

Programme of Internal Audit n The programme of internal audit should be so arranged by the Principal Director of Audit/Director General of Audit that all the sections of the Main Office and Branch Audit Offices are covered in a cycle of two years.

Reports of Internal Audit n The reports of internal audit along with the remarks

Reports of Internal Audit n The reports of internal audit along with the remarks of the Unit subjected to internal audit should be submitted to the Principal Director of Audit/Director General of Audit so that he may order necessary remedial action to prevent the recurrence of the defects and irregularities pointed out in the report.

Duties of Internal Audit Section (a) The Internal Audit Section will conduct a test

Duties of Internal Audit Section (a) The Internal Audit Section will conduct a test check of the work of other sections of the office keeping in view the principles mentioned supra. Further, it is the duty of Internal Audit to see that the defects noticed are remedied by the Sections concerned and there is no recurrence of such defects. Common defects noticed in a group of sections should be circulated periodically so that such defects may be guarded against in

 (Contd. ) (b) Besides the test check of the work done by other

(Contd. ) (b) Besides the test check of the work done by other sections (vide (a) above) Internal Audit Section should independently check: (i) one or two important items of audit work of each section to see whether the prescribed processes of audit have been correctly applied:

 (Contd. ) (ii) the entitlements of the salary etc. of the staff and

(Contd. ) (ii) the entitlements of the salary etc. of the staff and officers: (iii) the outstanding list of audit objections to see if there any important issues which can be developed into draft paras. ed tion n e d c) the Annexure to Chapter 17 of Manual of Standing Orders (Audit), a list of items to be seen during the internal audit of unit audit offices is given in the Annexure to this chapter.

Point to be seen in Internal Audit Unit audit offices: @ @ Whether the

Point to be seen in Internal Audit Unit audit offices: @ @ Whether the prescribed programme of audit is being followed by the sections and whether the processes of audit is being followed by the sections and whether processes of audit employed in the section ensure a complete scrutiny of the records under audit. The position of arrears and the periodical arrears reports submitted by the section concerned faithfully represent the actual position of arrears in that section.

 (Contd. ) @ @ Delays in the disposal of correspondence and whether these

(Contd. ) @ @ Delays in the disposal of correspondence and whether these have been brought to the notice of the Branch Officer/Group Officer/Principal Director of Audit wherever necessary through the Arrear Reports prescribed. The Calendar of returns – whether returns shown as having been sent on the dates mentioned therein were actually sent on those dates.

 (Contd. ) @ @ Whether queries made by the Principal Director of Audit

(Contd. ) @ @ Whether queries made by the Principal Director of Audit or deputy Director or Branch Officer are being attended to expeditiously. Scrutiny of some Part-II Audit Notes or Inspection reports to see that objections meriting inclusion in Part I Audit Note or Inspection Reports are not included in Part II audit Notes/Inspection Reports. Test check of the issue of Audit notes/Inspection Reports with a view to seeing whethere was any laxity at any stage in the issue of these reports.

 (Contd. ) @ @ Whether the files and other records of the section

(Contd. ) @ @ Whether the files and other records of the section are maintained in a neat and systematic manner. Whether the prescribed programme of audit is itself adequate or whether any modification or/addition is necessary to enable the Principal Director of Audit/Director General of Audit to record his annual certificate on the accounts.

 (Contd. ) @ @ Whether the Selection-cum-Audit Completion registers and Registers of Original

(Contd. ) @ @ Whether the Selection-cum-Audit Completion registers and Registers of Original Audit, Current Review, Post Review etc. are maintained properly and details of the vouchers/documents audited/reviewed are recorded in the concerned Registers. Whether in programming Station Inspections (Traffic Audit Inspection Section), the classification/categorization of a station with reference to its earnings, periodicity of inspection, composition of the inspection party and the extent of supervision by the Branch Officer concerned are as per the extant orders on the subject.

 (Contd. ) @ Whether the Sectional Library has been maintained up-to-date by pasting

(Contd. ) @ Whether the Sectional Library has been maintained up-to-date by pasting correction slips and orders etc. received from time to time. @ Whether proper arrangements are made to weed out old records which are due for destruction at regular intervals and to store the records of permanent nature.

 (Contd. ) Administration: ? Check of Service Registers and leave account of employees

(Contd. ) Administration: ? Check of Service Registers and leave account of employees who are due to retire within next two years. ? Registers of Medical Bills/Travelling Allowance Bills/Children’s Educational Allowance, Reimbursement of tuition fees and other claims of employees to see that they are not unduly delayed.

 (Contd. ) ? Whether a proper system exists for drawal of money towards

(Contd. ) ? Whether a proper system exists for drawal of money towards urgent contingent expenditure, its prompt payment to the suppliers concerned and whether it is being ensured that such moneys drawn for a specific purpose are utilized for the intended purpose and are not retained unduly for considerable period.

 (Contd. ) ? Register of Abstract of Contingent Bills (AC Bills) to see

(Contd. ) ? Register of Abstract of Contingent Bills (AC Bills) to see whether detailed countersigned contingent bills (DC Bills) have been submitted within the stipulated period (30 day) from the date of receipt of money against AC Bills (cf. Rule 307 and 310 Treasury Rules, Vol. I).

? ? ) proper machinery exists for Whether accountal of consumable and nonconsumable items

? ? ) proper machinery exists for Whether accountal of consumable and nonconsumable items purchased out of the funds meant for Office Expenses and periodical stock taking of such of those non -consumable items. Whether adequate arrangement sexist for proper upkeep of all the office appliances – such as Personal Computers. Photocopying machine. Typewriters, Calculators, Water Coolers, Room Coolers etc.

 (Contd. ) ? ? ? Whether a systematic stock taking of all the

(Contd. ) ? ? ? Whether a systematic stock taking of all the dead stock items is prevalent and necessary follow-up action in regard to condemned items is taken. Settlement of dues of retired / resigned /dismissed employees. Register of advances granted to employees to see that recoveries are made correctly and in time; interest for interest bearing advances are assessed and recovered correctly and in time.

 (Contd. ) ? ? ? Scrutiny of monthly review report on the activities

(Contd. ) ? ? ? Scrutiny of monthly review report on the activities of Administration. Deployment of manpower to achieve optimum utilization and system of estimating the requirement of manpower. System of attending redressal of complaints /grievances of outsiders as well as staff.

 (Contd. ) ? ? ? ? System of ensuring timely disposal of disciplinary,

(Contd. ) ? ? ? ? System of ensuring timely disposal of disciplinary, confirmation cases, EB cases. Stamp account. Imprest Cash Account. Check of issue of passes/PTOs and return of the unused/used passes.

Internal audit reports n Internal auditors typically issue reports at the end of each

Internal audit reports n Internal auditors typically issue reports at the end of each audit that summarize their findings, recommendations, and any responses or action plans from management. An audit report may have an executive summary; a body that includes the specific issues or findings identified and related recommendations or action plans; and appendix information such as detailed graphs and charts o

 (Contd. ) Each audit finding within the body of the report may contain

(Contd. ) Each audit finding within the body of the report may contain five elements, sometimes called the “ 5 C’s”: Condition: What is the particular problem identified? Criteria: What is the standard that was not met? The standard may be a company policy or other benchmark. Cause: Why did the problem occur? Consequence: What is the risk/negative outcome (or opportunity foregone) because of the finding? Corrective action: What should management do

 (Contd. ) n The recommendations in an internal audit report are designed to

(Contd. ) n The recommendations in an internal audit report are designed to help the organization achieve effective and efficient governance, risk and control processes associated with operations objectives, financial and management reporting objectives; and legal/regulatory compliance objectives.

 ) n Audit findings and recommendations may also relate to particular assertions about

) n Audit findings and recommendations may also relate to particular assertions about transactions, such as whether the transactions audited were valid or authorized, completely processed, accurately valued, processed in the correct time period, and properly disclosed in financial or operational reporting, among other elements.

 (Contd. ) n Under the standards, a critical component of the audit process

(Contd. ) n Under the standards, a critical component of the audit process is the preparation of a balanced report that provides executives and the board with the opportunity to evaluate and weigh the issues being reported in the proper context and perspective. In providing perspective, analysis and workable recommendations for business improvements in critical areas, auditors help the organization meet its objectives.

Characteristics of a good Report þ Complete- The report should be complete i. e.

Characteristics of a good Report þ Complete- The report should be complete i. e. all pertinent information required to satisfy the audit objective, scope, criteria, evidence, conclusions and recommendations should be available in the report. þ Objectivity – The comments and opinions expressed in the Report should be objective and unbiased. þ Accuracy – The information contained in the report should be accurate

þ Convincing- ) The report is convincing if the results of audit are presented

þ Convincing- ) The report is convincing if the results of audit are presented persuasively and the conclusions and recommendations follow logically from the facts presented þ Clear and concise – The Report should be easy to read, understand. The language used should be simple and straightforward and subject matter should be brief and to the point. þ Timely-The report adds value to the entity if it is timely i. e. immediately after completion

 (Contd. ) þ Balanced- The report is balanced if does not focus on

(Contd. ) þ Balanced- The report is balanced if does not focus on criticism but contain fair assessment or evaluation which would mean good performance should also be reported. þ Consistent- Consistency of the report is secured by ensuring that it does not contain contradictory findings or conclusions in similar contexts or the conclusions on the same segment in different sections or parts of the report are not incompatible

 d. ) þ Constructive- The Report is constructive if it manifests a remedial

d. ) þ Constructive- The Report is constructive if it manifests a remedial approach and includes appropriate recommendations.

 . ) How to make Internal Audit Effective

. ) How to make Internal Audit Effective

 . ) Basel Committee n “…. the principle of independence entails that the

. ) Basel Committee n “…. the principle of independence entails that the internal audit department operates under the direct control of either the organisation’s CEO or the board of directors or its audit committee”.

Independent guidelines of Internal Audit The internal audit function must be independent of the

Independent guidelines of Internal Audit The internal audit function must be independent of the activities being audited and must also be independent from everyday internal processes. n The internal audit department must be able to exercise its assignment on its own initiative in all departments, establishments and functions of the organisation. n

 d. ) Internal audit must be free to report its findings and appraisals

d. ) Internal audit must be free to report its findings and appraisals and to disclose them internally n The head of the internal audit department should have clear authority to communicate directly and on his or her own initiative to the board, the chairman of the board, or the chairman and members of the audit committee. n

Expectation from ITA team J ITA team should enter the offices of Branch Officers

Expectation from ITA team J ITA team should enter the offices of Branch Officers with due intimation after approval of programme by PDA/DGA. J ITA team should behave with the Branch Officers properly thinking that they are colleagues. ITA team should issue requisition for files/records etc. to Branch Officers for the purpose of audit.

 (Contd. ) J ITA team should issue audit memo to Branch Officers and

(Contd. ) J ITA team should issue audit memo to Branch Officers and try to get reply from Branch Officers. J On the closing day of audit ITA team should discuss the draft ITA report with Branch Officers. J Final Report will be prepared by ITA after incorporating the reply of BO with audit rebuttal followed by exit conference.

Expectation from Branch Officers J Branch Officers will cooperate fully with ITA team by

Expectation from Branch Officers J Branch Officers will cooperate fully with ITA team by providing records etc. including support. J Branch Officers will reply to audit memos of ITA team promptly. J Branch Officers will reply to Final Report of ITA team on priority basis.

 (Contd. ) J Branch Officers will prepare reply to ITA report in the

(Contd. ) J Branch Officers will prepare reply to ITA report in the letter form after complying with the deficiencies and send it to Sr. A. O (ITA) directly after approval of Deputy Director/Director mentioning “ This issues with the approval of Deputy Director/Director” with a copy to Deputy Director/ Director. J Deliberate delay in replying to ITA report without assigning any justified

Expectation from management of Office of the DGA, Central, Kolkata J ITA team should

Expectation from management of Office of the DGA, Central, Kolkata J ITA team should do 100 percent audit and should raise quality audit point in a healthy environment and Branch Officers should comply 100 percent so that “ PD (Inspection)’’ and “PEER REVIEW” team may not get any audit point and management of the Office of the DGA, Central is happy.

 (Contd. ) T HA NK S

(Contd. ) T HA NK S