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FAD AND FAR Committee of the Government of Ghana

Comments from the Association of Chartered Certified Accountants
January 2002

Executive Summary

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to respond to Comments on the Draft Report on the Scoping Study for the Establishment of Internal Audit Control Function in MDAs and MMDAs.

We consider that the FAD and FAR Committee has provided a comprehensive critique of the draft report from the Consultants, Ernst and Young Ghana. We hope that our comments will facilitate the production of an appropriate final report which can form the basis of the development of a modern high quality internal audit service for Ministries, Departments and Agencies (MDAs) and Decentralised Governmental Units (MMDAs).

We consider that good practice for the organisation of internal audit in African governments is for this to be handled through a centralised Internal Audit Department with staff seconded to the separate ministries, departments and agencies.

We have provided some additional guidance with this response which should assist with the reform of Government Internal Audit in Ghana. In particular, we have provided a copy of the Internal Auditing Guidelines from the East and Southern Africa Association of Accountants General. These were developed last year with technical assistance from our Head of Public Sector Technical Issues.

Detailed Comments

Role of internal audit

1. The Institute of Internal Auditors' definition of internal audit has changed recently and the current definition is:

'Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.'

2. We have provided a copy of the Institute of Internal Auditors' revised standards with this response. These are applicable from 1 January 2002. (paragraph 2.1 of FAD and FAR Committee comments).

3. We consider that the roles and responsibilities of inspectors and internal auditors are significantly different. Inspectors usually report externally on the quality of the services which an organisation provides. Internal auditors report internally, to the organisation's senior management, on the adequacy of the organisation's internal control systems. For this reason, we consider that it is probably not appropriate for internal audit functions in Local Government to be undertaken through the Local Government Inspectors (Paragraph 2.2.1 of FAD and FAR Committee comments).

4. We consider that the Consultants may have been referring to 'the integrity of computer systems including those systems under development' (at page 15 paragraph 2, bullet 4 of the Consultants' report). Thus, the adequacy of internal controls with regard to the development of new computer systems and applications should be within the scope of internal audit. A recent book on computer audit guidelines (Computer Audit Guidelines - CIPFA 1998) states that:

'For most organisations, IT is essential to the effective delivery of their services. They consequently incur significant amounts of expenditure not only on acquisitions but also on the support and maintenance of information services which depend on IT facilities. Management should ensure that acquisitions of all IT facilities and services meet the business needs of the organisation in a cost-effective manner.

Audit should determine:

• whether or not the management arrangements and procedures for such acquisitions will meet the objectives of management; and
• whether the arrangements and procedures have been applied in practice.'

Organisation of internal audit 5. We consider that good practice for the organisation of internal audit in government is for there to be a centralised Internal Audit Department with staff seconded to the separate ministries, departments and agencies. This may not, however, include independent bodies, such as, universities, the Bank of Ghana or the IRS. These organisations may be encouraged to obtain their internal audit services from a Central Internal Audit Agency (or National Internal Audit Agency). This would be particularly appropriate for smaller independent organisations which could only sustain internal audit sections of less than 10 audit staff. This style of organisation has been adopted in Botswana and Zambia. With this response, we have provided organogrammes of 13 countries in east and southern Africa and the contact details for their heads of government internal audit.

Audit committees

6. Given the existence of Audit Implementation Committees, we agree that, it should not be necessary to establish parallel audit committees. We consider, however, that the terms of reference of the Audit Implementation Committees may need to be extended to ensure that they are able to play their full roles as effective audit committees (paragraph 2.4 of FAD and FAR Committee comments). We believe that audit committees should advise their accounting officers on:

• promoting internal control including:
  • systematic appraisal of internal controls
  • maintaining an anti-fraud culture
  • reviewing financial procedures
• focusing audit resources including:
  • agreeing internal and external audit plans
  • monitoring internal and external audit delivery
  and
• monitoring audit performance including:
  • securing auditor/officer collaboration within agreed time scales
  • securing timely preparation and response to audit reports
  • ensuring implementation of audit recommendations.

7. We consider that, within Africa, Botswana and South Africa have the best developed Audit Committees. The Government of Ghana may be able to benefit from the experience of these countries.

8. We question whether it would be appropriate for the proposed National Internal Audit Agency to have a Board (page 17 of the Consultants' report). We feel that the appropriate Audit Committee would be well placed to play the role of a Board. If a Board were considered to be appropriate, we would question whether it would be appropriate to include Ministers as members of it. The role of internal audit as a service to the senior management of an organisation may be seriously compromised if Ministers are involved in the oversight of the National Internal Audit Agency. The situation of the Audit Service is not comparable. The Auditor General reviews the accounts and financial management of government departments on behalf of the Government (the President and Ministers) and Parliament. Thus, in this case, it would be appropriate for Ministers to have oversight responsibility for the Audit Service. This should, however, not extend to the proposed National Internal Audit Agency.

Distribution of internal audit reports

9. The prime recipients of final internal audit reports should be the accounting officers or chief executives - as the head of the organisation's management (page 18, bullet 1 of the Consultants' report). Audit reports should be sent to the head of the section which was subject to review by internal audit to confirm the accuracy of the report and to obtain agreement as to the implementation of any internal audit recommendations.

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