Private vs Public Sector - Internal Audit
An internal audit function within the public sector will experience some challenges that may not be present in the private sector enviroment. These challenges range from the reporting relationship of the function to allocation of resources and it may take much longer to achieve changes within the public sector than in the private organisation.
But why should this be? Well for starters, the owners of public sector organisations are usually less well defined than in the private sector. This means that the decision making will be more bureaucratic than in private sector. When decsion making is too complex and involve too many different levels there is a high chance that some tasks will not get done as the various decisonmakers try to come to agreement on what should be done.
The role of internal audit within organisatons is becoming more and more critical as agencies face a very dynamic operating environment. With specialist skills in business process analysis and a logical approach to evaluting systems, internal audtors are well placed to quickly understand these changing systems while remaining focused on and identifying risks to the achievement of objectives. However whilst this is well recognised within the private sector, public sector agencies are still in the dark ages when it comes to understanding the benefits of a well resourced and professionally run internal audit function.
Issues of concern within public sector internal audit functions begin wtih the fundamental issue of lack of understanding of the role of internal audit! This can be clearly seen in the many public sector agencies who use the internal audit function as an internal check for the Accountant General's work. These agencies establish internal audit posts within the Accountant General's office however the staff are used to check the accuracy of requests for payment, more like internal checks of operational tasks. But based on the professional standards for practicing internal audit, the function must be independent, otherwise they are a part of the operations and therefore should not be called internal auditors.
If public sector agencies want to establish and operate internal audit functions they will need to firstly determine what role the internal audit function will play and seriously develop and implement a framework for the function to succeed and add value in that role. Such framework should include at a minimum:
Setting up an appropriate organisation structure in which the function can function independently of other operating departments as well as gain relevant strategic information for assessing risks and developing suitable audit universe for planning audits as well as provide feedback on agencies responsiveness to internal audit work.
Giving due consideration to budget allocations in order to attract and retain qualified staff and faciliate ongoing training and development of staff.
Communicating throughout the agencies an internal audit charter that identifies the roles, responsbilities, rights and significance of the internal audit function. Thereby setting the tone as to management's position on the work of internal audit and thus obtaining committment from agencies to supporting and complying with internal audit work.
Unless these things are in place the public sector is not ready to say that they have an internal audit function.
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