PUBLIC INTERNAL AUDIT STRATEGY PAPER

(2008-2010)

 I. INTRODUCTION

Due to the economic crisis throughout the world; reactions towards inefficient utilization of public resources have increased, accountability of managers on the efficient and rational use of public resources has gained significance. Therefore concepts like managerial responsibility, responsibilities concerning the programs, society and the processes have been introduced in public administration.

With Public Financial Management Law No. 5018; it is stipulated that public financial management and control system in Turkey shall be re-structured, abiding by the principles of accountability and fiscal transparency as well as principles of effective, efficient and economic utilization of resources allocated to achieve the targets set taking the strategic priorities and international best practices into consideration

It is aimed that the transition process to be adopted during the restructuring shall be completed by the end of 2007, and as of the beginning of 2008 public financial management and control system which is compliant to international standards and EU practices shall be established.

With this reform, important aspects of contemporary financial management and control practices such as strategic planning, performance based budgeting, managerial accountability, internal control, internal audit, transparency and reporting have been introduced.

One of the most important mechanisms of this newly established system is the “internal audit” activity. Internal audit is stipulated to be performed in a systematic, continuous and disciplined approach and in accordance with generally accepted standards in order to evaluate and improve the management and control structures of public administrations as well as the efficiency of risk management, management and control processes of financial transactions performed in these public administrations.

In this strategy document adopted upon the Decision of Internal Audit Coordination Board No. 22 dated 05.11.2007, current status of internal audit in Turkish public administration system is analyzed and certain elements which could be regarded as the features of a roadmap for 2008-2010 period are included.

II. CURRENT SITUATION

With Law No. 5018, Internal Audit Coordination Board (hereinafter referred to as “Board”) is established as an independent and impartial organ responsible for carrying out central harmonization function in internal audit area. 

The Board is responsible for performing duties such as the establishment of internal audit in public administrations in accordance with international practices and standards, ensuring cooperation with internal audit units, providing recommendations in terms of taking the necessary measures for abolishment of irregularities and corruption, improving the risk assessment methods, preparation and implementation of training programs for internal auditors, determination of code of ethics to be abided by internal auditors, evaluation of internal audit units within the scope of quality assurance and improvement program.

Activities carried out so far in terms of the establishment of internal audit system are as follows:

1. With Law No. 5436 published in Official Gazette No. 26033 dated  24/12/2005, from the class of general administrative services, 1200 internal auditor cadres have been created for public administrations within the scope of general government, special budget agencies and social security institutions which are subject to Decree Law No. 190.
2. It is also decided that as per the Council of Ministers Decree No. 2006/10809 on the allocation of internal auditor cadres to public administrations subject to Decree Law No. 190,  types and degrees of (720) internal auditor cadres shall be changed and allocated to said public administrations.
3. With the Council of Ministers Decree No. 2006/10911 on the allocation of internal auditor cadres to local administrations, (588) cadres have been allocated to local administrations as per degrees.
4. With Council of Ministers Degree No. 2006/10808 governing the procedures and principles related to additional payment to be effected to internal auditors within the scope of Decree Law No. 375; procedures, principles and amounts of additional payment to be effected to those recruited in internal auditor cadres in accordance with Public Servants Law No. 657 have been determined.
5. By-Law on Working Procedures and Principles of Internal Audit Coordination Board published in Official Gazette No. 25960 dated 08/10/2005 regulates the working procedures and principles of the Board.
6. By-Law on the Selection, Training and Certification of Internal Auditor Candidates published in Official Gazette No. 25960 dated 08/10/2005 regulates the procedures and principles governing the selection and training of internal auditor candidates as well the examinations, duration and courses of the training program, procedures to be applied following the training and the internal auditor certificates which will be disseminated to the successful candidates.
7. By-Law on the Working Procedures and Principles of Internal Auditors published in Official Gazette No. 26226 dated 12/07/2006 regulates issues such as the number of internal auditors as per administration, their qualifications, appointment, working procedures and principles, certification and grading.
8. The appointments of internal auditors to the public administrations within the scope of Law No.5018 has started and Internal Audit Coordination Board has been informed that as of October 2007 totally 510 Internal Auditors have been appointed to 147 public administrations; 169 of which to general budget administrations, 187 of which to special budget administrations, 12 of which to social security institutions and 142 of which to local administrations.
9. In February and May 2007, 204 internal auditors from 68 public administrations received six-week internal audit first level training in Ankara on general subjects with regard to the implementation of internal auditing activities. Following the completion of six-week second level training including other training courses on legislation which started in October 2007, 85 internal auditors will be awarded with certificates and start internal auditing in their administrations. 
10. Also in October 2007, 117 internal auditors and in November, 75 internal auditors started their first level training.

Apart from the above mentioned, following communiqués and guides have been prepared and published with regard to the establishment and implementation of internal audit system in public administrations:

1. Communiqué on Principles and Procedures Regarding The Appointment of Internal Auditors (No: 1)
2. Communiqué on Principles and Procedures Regarding The Appointment of Internal Auditors (No: 2)
3. Public Internal Auditors Professional Code of Ethics
4. Public Internal Audit Standards
5. Public Internal Audit Charter
6. Public Internal Audit Reporting Standards
7. Principles and Procedures on Grading of Public Internal Auditor Certificates
8. Common Working Principles and Procedures on Internal Auditors Working in Different Public Administrations
9. Public Internal Audit Plan and Program Preparation Guide
10. Risk Assessment Guide in Public Internal Auditing

In addition to these, following draft guides have been prepared and planned to be published in 2007 and 2008.

1. Public Internal Audit Guide
2. Quality Assurance and Improvement Guide in Public Internal Auditing
3. Information Technologies Auditing Guide in Public Internal Auditing

On the other hand, Twinning Project on “Alignment of the Turkish Public Internal Financial Control System with International Standards and EU Practices” which is financed by EU funds with a view to align financial management and control system in Turkey with European Union norms and international practices was jointly executed by Turkish Ministry of Finance and French Ministry of Economy, Finance and Industry between 30 March 2005 and 31 December 2006.  

15 public administrations, 5 of which are pilot institutions were included within the scope of the project. Legislation, administrative structure, data processing infrastructure and human resources under the organization of Ministry of Interior, Ministry of National Education, Social Security Institution, Middle East Technical University and Ankara Metropolitan Municipality, which are pilot institutions, had the chance to realize “on the spot” analysis.  

Other administrations included within the scope of the project are as follows: Ministry of Energy and Natural Resources, Ministry of Health, Ministry of Public Works and Settlement, Undersecretariat of Customs, Undersecretariat of Treasury, Undersecretariat of State Planning Organization, Banking Regulation and Supervision Agency, Capital Market Board and Turkish Court of Accounts. 

Hardware of 5 pilot administrations, Ministry of Finance and Internal Audit Coordination Board as well as Computer Aided Audit Techniques Software (CAAT) which will be used in the public administrations were purchased within the scope of the project aiming at the establishment of technical infrastructure. Thus, efforts towards the establishment of internal audit automation programs in pilot administrations and provision of them to the other public administrations were initiated.

The main objective is to put into implementation an internal audit activity which is compliant to international standards through training of public internal auditors with adequate knowledge and experience and increasing the quality of public auditing practices.

 III. STRATEGIC OBJECTIVES

2.1  Establishment of internal audit units and implementation of internal audit

2.1.1 Establishment of internal audit units

1. Promptly establishment of internal audit units within the administrations where the internal audit unit does not exist, in compliance with the hierarchy determined in the relevant legislation 
2. Organizing the internal audit management as well as the position of the internal audit units in organizational charts so that effective execution of the internal audit activities can be ensured
3. Appointment of the most eligible person as the chief audit executive
4. Within the framework of determined cadres, appointment of internal auditors at required number, creation of extra cadres in the administrations with inadequate number of internal auditor cadres, 
5. Appointment of internal auditors with relevant expertise in public administrations which execute activities in more than one specialization area

2.1.2 Completion of Legislation

1. Preparation by Board of internal audit guide, quality assurance and improvement guide, information technologies (IT) audit guide, procedures and principles on postgraduate education of internal auditors abroad, auditing of units abroad  as well as other arrangements that may be required; all of which are part of tertiary legislation and have not been published yet
2. Preparation of internal audit unit charter, internal audit guide and guide on auditing of units abroad by internal audit units

2.1.3 Implementation of internal audit

1. In order to ensure that internal auditing activity is carried out in accordance with its original purpose and in a sound manner; clarifying the scope of internal audit within the agency as well as the roles of internal auditors and other personnel in internal audit, ensuring that these roles are generally accepted by all parties
2. Reviewing the organizational structures, business processes as well as the management and control processes of administrations at first
3. Detailed examination of the risk management processes of the administration
4. Adoption of risk oriented approach with respect to the utilization of audit resources
5. Preparation of 2008-2010 internal audit plan and annual internal audit program so as to start auditing in 2008
6. With respect to the internal audit plans and programs which will be prepared for the first time, taking system audit, compliance audit, financial audit and performance audit order as basis
7. In the administrations where internal audit is performed for the first time, detection of one or a few areas as “pilot auditing areas” rather than all areas; completion of the auditing in these areas in the first year by using all auditing resources for this purpose; and starting auditing in other areas on the basis of the lessons learned and experienced gained in this process
8. Revealing the weaknesses and/or areas to be improved in terms of management and control process of the administration and preparation of joint action plans together with the managers of the administration with a view to realize the required improvements
9. Monitoring whether the proposals (agreed upon with the administration at the end of the internal auditing processes and based on action plans) are put into practice as planned or not
10. Regarding Information Technologies (IT) audits, starting the search for required IT auditors in the scope of existing employment facilities; planning of IT auditing so as to perform it together with other audits when IT auditing turns into an applicable process
11. Conduct of reassurance and consultancy activities hand in hand[1]

2.2  Monitoring the internal auditing activities

1. Establishment of an internal monitoring mechanism (such as the appointment of audit supervision officer) to monitor whether the internal audit performed by internal audit units comply with the regulations specified in related standards, legislations and guides or not
2. External evaluation to be made by the Board (once in five years at the latest and in the scope of quality assurance and improvement guide) for each internal audit unit on whether the internal audit is performed in line with the regulations specified in related standards, legislations and guides
3. Consolidation by the Board of the results of internal auditing activities to be performed in the public administrations; and making evaluations and explanations on the frequently encountered problems and best practices

2.3  Improvement of Internal Audit

2.3.1 Improvement of internal auditing activities 

1. Preparation of a glossary to ensure “unity of concept” (conceptualization) and to ensure use of the same jargons by the executers in internal auditing
2. Use and generalization of computer-supported auditing techniques in internal audit
3. Continuous evaluation of regulations related with internal audit; and revision of related legislation by taking into consideration the international developments in this field

2.3.2 Increasing the Number and Improving the Quality of Internal Auditors

1. Providing the internal auditors with a minimum of 100 hours of on-the-job training (apart from the certificate program) as per related legislation on a three year basis and in a regular way
2. At the beginning, conduct of trainings in the required areas by outsourcing or by professional personnel employed in other internal audit units; in the following phases, detection of potential trainers among internal auditors and creation of its own trainer staff by each internal audit unit by encouraging participation of said internal auditors in the “training of trainers” programs 
3. Co-operation with people and agencies producing academic works on internal audit; and encouraging the production of similar works in this field
4. Paying of study visits in the scope of specific programs to the countries which are role models in internal auditing area

2.3.3 Strengthening of institutional capacity

1. Strengthening of the institutional capacity of the administration in a way to perform central harmonization function in line with the present and foreseen requirements
2. Inclusion of the Board and internal audit units in the organization laws

2.3.4 Raising Awareness on Internal Auditing 

1. Organization of information meetings, workshops and seminars by the Board and internal audit units to make the heads of public administrations understand and adopt internal audit
2. Preparation of handbooks and brochures on “What is internal audit?” and “How to perform internal audit?”

2.4  Harmonization and coordination of internal auditing activities

1. Transforming the Board into an excellence center and establishment of required communication network with the aim of detecting and generalizing the best practices in internal auditing and immediate announcement of these best practices to all related authorities
2. Establishment of close cooperation between the Board, internal audit units and other audit units to detect common policies; to decide mutual roles and expectations; and to solve possible problems

IV. SWOT ANALYSIS

4.1 Strengths

1. The experience and motivation of the Board members is quite high 

2. First and secondary legislations on internal audit have been completed

3. Internal auditor cadres decided in the scope of the administrations’ requirements have been allocated 

4. Most of the auditors have been appointed

5. Internal auditor certificate training has started

6. A Twinning Project has been completed in the scope of pre-accession financial assistance, with the aim of supporting the implementation of Law No 5018

7. Internal auditors appointed as per Provisional Article 5 have a big experience and strong auditing culture

4.2 Weakness

1. Internal auditor appointments have not been realized in some administrations
2. Internal auditing activities have not started yet
3. The infrastructure of internal audit information technologies is not spread enough
4. Tertiary legislation has not been completed yet
5. Administrations have a weak administrative and institutional capacity
6. Some incompatibilities exist between internal audit legislation and EU norms and implementations
7. It is possible that appointed auditors may pursue traditional audit paradigm 

4.3 Opportunities

1. EU harmonization process and the structural changes required by this process
2. Negotiations on financial control chapter (Chapter 32) covering internal audit as well has started
3. Efforts to make changes in public administration continue
4. Management cadres in public administrations are composed of young and educated people
5. Comprehensive international knowledge on internal audit 

4.4 Threats

1. The possibility that EU process may halt sometimes
2. Heads of administrations and the units to be audited  are not conscious enough on internal audit
3. Public administrations are reluctant in terms of auditing activity