Internal audit system in quandary

The special study by the Royal Audit Authority (RAA) has pointed out that the Internal Auditing System (IAS) in the country has been ineffective due to lack of clear policy directives.

The study was conducted at the behest of the prime minister and was submitted to the cabinet last year-end.

The study says that IAS has been functioning devoid of clear directives since its establishment in 2007. Though the finance ministry clarified most grey areas through a charter in 2008, certain ambiguities still persist.

The roles and responsibilities and accountability of the heads of the ministries and agencies in ensuring effective functioning of internal controls, particularly IAS, are not adequately covered in the charter.

The heads of agencies are unclear about their responsibilities in the establishment of effective internal control system.

“Many perceive IAS as an extension of the Royal Audit Authority (RAA) than an integral part of the organization,” the report states.

According to the RAA, this perception has mainly emerged from the non-integration of IAS within the organizations resulting in lack of trust in internal auditors.

The deputy auditor general, Jamtsho, said there were instances where a few internal auditors even refused to share their reports with the RAA. “I think it was based on the instruction of the heads of agencies or because of some confidential information,” he said.

He said if the auditors do not share the copy of their reports with the RAA, it will not know the areas they look into.

The internal auditors, Jamtsho said, should report if there are deficiencies and weaknesses in the system and either ministers or secretaries should rectify the reports.

The deputy auditor general said the internal auditors are with the agencies throughout the year unlike the ones from RAA auditing within two to three weeks. Thus, it is difficult to know how the entire control environment in a ministry or agency functions, he said.

A senior civil servant said the auditing conducted by internal auditors is questionable as they work directly under the heads of agencies they audit. Moreover, internal auditors may not like to tarnish the image of their own agencies by reporting flaws.

During the last session of parliament, after reviewing the RAA’s study on IAS, the Public Accounts Committee (PAC) pointed out that the government needed to look into the matter.

PAC said that an effective internal auditing system would go a long way in curbing corruption.

Why IAS is ineffective?

Some of the problems include lack of clear policy directives, qualification and competence of internal auditors, audit methodologies, quality assurance, and monitoring mechanism.

The PAC report presented to the National Council says that most agencies have not been able to institute IAS into their system.

There are no enough internal auditors in the ministries and agencies. In the tenth five year plan, 73 internal auditors are required, but the civil service commission has approved only 47. And 20 of them are in the field.

In the recent NC session, MP Jigmi Rinzin said internal auditors are placed only in the ministries. They do not cover the dzongkhags though the volume of work and budget in the dzongkhags may be the same or even more than that of the ministries.

The lack of policy on IAS human resource development has been pointed out as one of the reasons for incompetence of internal auditors.

The deputy auditor general, Jamtsho, said there is not much input in the annual auditing from the internal auditors. He said most of them are young without much experience.

Some internal auditors, Jamtsho said, do not even seem to have submitted proper reports. He added that there are only a few senior internal auditors whose reports the RAA considers to look at.

The PAC’s presentation to parliament pointed out that IAS has been established by auditors from different agencies with varying educational backgrounds but without any orientation to the system. This, the report said, has had a substantial negative impact on the productivity of the system.

The absence of a proper standard methodology, according to the RAA, has also led to ineffective planning, overlapping and duplication of works by internal auditors. At times, the internal auditors have also been misused by making them respond to audit memos.

The PAC’s report says that “Since the IAS is not functioning effectively, the PAC feels that corrective measures need to be put in place at the earliest.”

At the moment, the internal auditors are under the finance ministry. The ministry officials were unavailable for comment. The RAA is waiting for directives from the finance ministry on the issue.

Jamtsho said, as the matter has been taken up by parliament, the RAA awaits directives to see what it can do.

By Pushkar Chhetri

5 Responses to “Internal audit system in quandary”

1. Zala says:

   July 22, 2011 at 3:06 pm

   The Internal Audit System in all offices must be made strong enough to support corruption. Although ACC and RAA is trying their best to curb every corruption, in some offices it goes unoticed by them and we are aware of this. We support of to have a very strong IAS. Cheers.

   Reply
2. Tashi says:

   July 25, 2011 at 2:39 pm

   The above article does throw few lights of the many existing but unnoticed or unheard things regarding the clear-cut roles and responsibilities of the Internal Audit Officials. Yes, the internal auditors are under the Finance Ministry by technically and administratively all internal auditors are functioning direclty under the control of their repective working agencies. The Ministry of Finance has a play only in recruiting them and apart from that nothing else, forget about giving them clear-cut directions. Apart from lacking clear policy directive, the internal auditors can’t function effectively without fear or favouritsm because if they do function effectively by pointing out all loop holes of their organization then, the head of the agency will hate and shun them and will try to side line him from availing in incentives such as short/long courses training, tours, leave, personnel welfare, etc. Thats the fear that some or alomost all internal auditors have in the back side of their mind. If the govt. wants to curb corruption through internal auditors, then they (iA) must be empowered to do so without the fear or pressure of their head of agencies because most corruption takes place at a higher decision making level and the head always subdue their subordinates and hardly listen to them or care about the rules especially when they have the power and no one above them. Look at the shameless Ministry of health!. inspite of having internal auditors, corruption is so widespread from procurement to refferrall treatment outside. We have no doubt that such corruption must have took place long time ago but came out in public only a recent while. The internal auditors will be able to function more effectively and effeciently only if they are kept under the direct control both administratively and technically under the control of RAA or RCSC and not under the Ministry of Finance or whichever agency they are working. As pointed out in above posts, the internal auditor firstly will not like to tranish the image of their orgn. secondly, they will not be assertive or be able to speak in the face of their bosses and point out their mistakes, wrong decisions, or say not to be corrupt.

   Reply
3. Wangmo says:

   July 26, 2011 at 12:58 pm

   What I wanted to say has been told by Tashi and its true to my knowledge and experiences. This and thats are still happening in our systems that allows corruption and killing the weaker ones and supporting the bolder ones by the rules itself. Thats why somebody gets richer more quickly and surprisingly beyond their earnings level. I was wondering why??? and now I am knowing something fishy in our systems itself.

   Reply
4. Trashey says:

   August 2, 2011 at 11:11 am

   What some of the above responders say is absolutely right and i strongly support on their say. Yes of course, the government is on their way to curbing corruption through IAS, but not all, though the mandates, it’s rules responsibilities are vague, it works only on the grass root level and the corruption mainly occurs on the higher personnel as a general. So to eradicate that corruption I think it is moreover paramount to framework IA System and directives effectively to overcome corruption and to achieve our HM’s Goal of GNH.
   On the other hand, Even the corruption happens in the agencies where the IA’s work, they may not like to tarnish the image of their own agencies coz, they work directly under the heads of agencies they audit. Therefore, i submit that everything should be fair and worthy.

   Reply
5. SANTOSH KUMAR GUPTA says:

   January 13, 2012 at 6:35 pm

   Dear Sir

   With due respect i would like to know about your Internal Audit system in yours country, can B.Com Degree Holder from Indian University can apply for Internal Auditor Auditor of Bhutanese Companies.

   Thanking you.

   yours faithfully
   Santosh Kumar Gupta

   Reply