2012年-世界发展银行全球_Strategic_Plan_for_Strengthening_of_Internal_Audit_in_Government_of_Bihar_22页_299kb

Strategic Plan for Strengthening Internal Audit in the Government of Bihar

Introduction

The Government of Bihar has initiated several reforms to modernize fiscal and financial management, including the adoption of the Fiscal Responsibility and Budget Management Act, General Financial Rules of the Government of India, and decentralization of financial powers. These reforms aim to enhance the pace of expenditure and implementation of development schemes. To support this, the Government entrusted the Centre for Good Governance (CGG) with a project to modernize the internal audit function, which involves reviewing current systems, preparing an internal audit manual, assisting in the creation of an annual audit plan, designing a training module, and advising on the implementation of a new internal audit approach.

Methodology

CGG has followed a structured methodology to strengthen the internal audit function:

• Develop a strategic view of internal audit (IA) that includes compliance, regularity, and broader aspects like efficiency and effectiveness.
• Restructure audit practices to move toward higher-level audits.
• Review and redesign the organizational structure and responsibilities of IA.
• Prepare IA manuals based on the new vision of the IA service.
• Design a training program for internal auditors to meet their new roles.
• Encourage IA involvement in the development of financial and accounting systems to ensure built-in controls.

The recommendations are based on international best practices and standards from the Institute of Internal Auditors (IIA) and the International Organization of Supreme Audit Institutions (INTOSAI).

Internal Controls and Internal Audit

Internal Control is a process designed to address risks and provide reasonable assurance that organizational objectives are met, including:

• Orderly, ethical, economical, efficient, and effective operations
• Fulfillment of accountability obligations
• Compliance with laws and regulations
• Safeguarding resources against loss, misuse, and damage

The COSO framework outlines five key components of internal control:

1. Control Environment: Establishes the tone of the organization, emphasizing integrity, competence, and clear roles.
2. Risk Assessment: Identifies and evaluates risks to the achievement of objectives.
3. Control Activities: Policies and procedures to address risks, such as authorization, segregation of duties, and reconciliation.
4. Information and Communication: Ensures that controls are communicated effectively throughout the organization.
5. Monitoring: Continuously assesses the effectiveness of internal controls, with internal audit playing a crucial role in this process.

Internal audit is defined as an independent, objective assurance and consulting activity that adds value by evaluating and improving the effectiveness of risk management, control, and governance processes. It serves as a master control that ensures all other controls are functioning effectively.

Standards of Internal Audit

Internal auditors are expected to adhere to the following principles:

• Integrity: Maintain trust and avoid conflicts of interest.
• Objectivity: Report findings without bias or fear.
• Confidentiality: Respect the confidentiality of information received.
• Competency: Possess the necessary knowledge and skills to perform audits effectively.

The internal audit function should report directly to the audit committee or senior finance officials to ensure independence and avoid involvement in regular departmental duties.

Existing Organization, Personnel, Skills, and Capacities

The Finance (Audit) Section (FAS) was established in 1953 and is headed by a Joint Secretary-level officer, the Chief Controller of Accounts (CCOA). It has a dedicated cadre of auditors, but the staff is significantly under-staffed, with only 6 Senior Auditors Grade I and 271 Grade II in position out of 49 and 433 sanctioned posts respectively. Most auditors have not received in-service training, and the working conditions are poor, with limited modernization and no digital systems. Audit reports are still typewritten, and there is a lack of cooperation from audited units.

Strengths and Weaknesses of the Present Internal Audit Dispensation

Strengths

• A centralized internal audit department under the Finance Department, which is a rarity in many states.
• A dedicated cadre of auditors and a system of departmental examinations.
• A Joint Secretary-level officer as the head of FAS.

Weaknesses

• High number of auditable units (around 25,000) and limited capacity to audit them.
• Significant vacancies in the audit staff, leading to reduced audit coverage.
• Lack of in-service training and poor working conditions.
• Low morale due to lack of promotions and non-reimbursement of travel allowances.
• Poor response to audit findings, with many objections pending settlement.
• Audit committees have not effectively addressed compliance with audit recommendations.

Strategy for Strengthening Internal Audit Function

The strategy for strengthening internal audit is based on both ideal and practical approaches, with the following key elements:

• Recognize internal audit as an assurance function rather than just an inspection mechanism. It should focus on evaluating the soundness of internal control systems and providing recommendations for improvement.
• Clarify the roles of management and internal audit to ensure that management is responsible for establishing and maintaining internal controls, while internal audit supports this by evaluating their effectiveness.
• Enhance staffing and training to ensure that the internal audit function is adequately resourced and equipped with modern skills.
• Improve working conditions and modernization of the internal audit offices, including the introduction of digital systems.
• Ensure independence by restructuring the reporting lines and assigning a higher-level officer to lead the internal audit function.
• Address the backlog of audit objections and improve the response mechanisms to audit findings.

Conclusion

The Government of Bihar has a strong foundation for internal audit with a centralized structure and a dedicated cadre. However, the function is hindered by under-staffing, poor working conditions, and a lack of modernization. To strengthen internal audit, the government must enhance staffing, provide regular training, improve the audit environment, and ensure that internal audit is treated as an assurance function rather than just a compliance check. This will help in achieving better financial management, accountability, and transparency across the government.