Public sector: internal audits critical role

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 institutes 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 IIAs 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 audits 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 Brownes 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 boards 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.