The 1st ASOSAI-EUROSAI Joint Conference
Istanbul, Turkey
September 2011
Contributed by
the Board of Audit and Inspection of Korea
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Overview
1. Introduction
2. Road to the enactment of the Public Sector
Internal Audit Act
3. Key elements of the Public Sector Internal Audit Act
4. BAI’s role in establishing the internal audit
system
5. Some early outcomes and challenges
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1. Introduction
• Objectives of Public Financial Management (PFM):
▫ Fiscal discipline
▫ Allocation of resources to priority needs
▫ Efficient/effective delivery of public services
• Despite numerous attempts to achieve the objectives,
PFM system has not succeeded due to the lack of effective:
▫ Control over the growth of expenditures
▫ Prevention of the waste of public money
▫ Response to the changing environment
Public trust was jeopardized.
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1. Introduction (cont.)
• The BAI’s leadership in restoring public trust
- The BAI, as the Supreme Audit Institution (SAI) of Korea,
initiated the enactment of a basic law for internal audit units
(IAUs), ‘Public Sector Internal Audit Act.’
• Essence of the Act:
- Re-establishment of the roles and functions of IAUs as a way
of improving PFM
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2. Road to the enactment of
the Public Sector Internal Audit Act
• Korea’s Internal audit system in the past:
Time
1962
Late
1980s
Decisions of the Gov’t
Drawbacks
Introduced the internal audit Importance of financial management
system.
was not fully considered.
• Decentralized the internal
audit system.
• Gave the heads of public
organizations autonomy to
decide on the matters of
internal audit.
• Internal audit function was carried
out by a division of planning or
legal affairs.
• Auditors were appointed from
among generalists within the
organizations through job rotation.
• Independence and professionalism
could not be ensured.
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2. Road to the Enactment of
the Public Sector Internal Audit Act (cont.)
• The BAI’s efforts to unravel the status-quo of the internal
auditing system:
1.
In 2003, the BAI opened up discussion on establishing an overarching law
governing a whole set of rules on internal audit functions in the public sector.
2.
The BAI confronted strong opposition from public entities that were
concerned that the Act might infringe on their management authority on
organization and personnel.
3.
To head off criticism, the BAI advocated the necessity of the law at public
policy hearings and symposia attended by the National Assembly and other
stakeholders.
4.
After 7 years, the BAI succeeded in enacting the Public Sector Internal Audit
Act in 2010.
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3. Key Elements of
the Public Sector Internal Audit Act
1.
Mandating the establishment of internal audit units:
- Legal basis: an IAU should be established within each public organization.
2.
Ensuring independence of internal auditing:
- Independence in audit activities, organization, personnel, and
budget.
- Heads of IAU: recruited internally/externally (through an open
competition) with a fixed term of office.
3.
Strengthening professionalism of internal auditors:
- Heads of IAU may call on external experts for special
skills/experiences, if necessary.
- Heads of public organizations: may give incentives and/or
promotion to internal auditors.
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3. Key Elements of
the Public Sector Internal Audit Act (cont.)
4.
Standardized and transparent audit process:
- Audit standards/ code of conduct
- Auditors’ right to access documents and ask the parties
concerned to appear and answer.
- Publication release was encouraged.
5.
Cooperation between SAIs and internal auditors:
- Establishment: a Joint Coordination Committee
- Evaluation of IAUs on management, audit operation and audit
performance.
- Report of the evaluation to the National Assembly
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4. BAI’ s Role in Establishing
the Internal Audit System
I.
As a supervisor:
- Conducts a comprehensive assessment on the performance
of IAUs on a regular basis.
II.
As a promoter:
- Promulgates the audit standards, guidelines and manuals;
- Organizes training workshops/seminars for internal auditors; and
- Serves as an internal audit clearing house for the IAUs.
III. As a partner:
- Communicates actively with the heads of IAU to seek
cooperation for mutual trust (Joint Coordination Committee)
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5. Some Early Outcomes and Challenges
Outcomes achieved
Challenges to address
1. Increased number of IAUs have
been established within public
1. More internal audit results should
entities;
be disclosed in full text;
2. More IAU heads were recruited
2. Expanding the mandates of
externally;
internal auditing should be given
3. Cooperative relationship was
an impetus (i.e. pre-audit); and
expanded into new areas
3. Still, the heads of public
- Internal audit standards
organizations have a concern that
- Joint Coordination Committee
the establishment of an
- Internal Audit Support Group; and
independent IAU would
4. Internal auditing gained more
undermine the autonomy of their
attention from the public. (increased
organizations.
news coverage on internal auditing)
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Thank you!
The Board of Audit and Inspection of Korea