Overcoming the obstacles to an effective internal control function.

• Author: McKay, Glen
• Position: Role of internal auditor, internal audit function

The role of the internal auditor in government is a unique, difficult, and challenging one, beset by obstacles and presented with opportunities. The internal auditor is an essential component of a governmental agency's internal control structure and environment. It is fair to say that there is much confusion in government about what an internal auditor is and does. Thus, the stage is set for internal auditors to demonstrate and enhance the internal audit function as well as engage in a proactive effort to preserve the internal audit function and deflect non-audit tasks that threaten to sap the internal audit function of its viability and effectiveness.

This article will clarify the role of the internal auditor, focusing on the core characteristics of the internal audit function; provide a description of five significant obstacles that taken singly or together can vitiate the internal audit function, plus suggested remedies; and discuss confidentiality and a recommendation regarding that essential pre-requisite for effective internal audit work.

CLARIFYING THE ROLE OF THE INTERNAL AUDITOR

The core characteristics of the internal audit function require a brief presentation because in some circumstances some of the internal audit functions are carried out by government employees who do not have the title or the formal responsibilities of an internal auditor, while in other circumstances, government employees with the title of internal auditor and the putative internal audit responsibilities, do not perform internal audit functions.

The primary core characteristic is that the internal auditor reports directly to the head or the deputy head of the government agency, and that the internal auditor is in a staff role entirely independent of line or operational responsibilities and duties. In situations in which the agency has a governing board, the reporting relationship has been or is in the process of being transformed to require that the internal auditor report to the governing board or an audit committee of the governing board. In these circumstances, the internal auditor is located completely outside the hierarchical structure of the agency and is distinct from all staff and line functions. Instead of reporting to one individual, the internal auditor reports to a group.

The second core characteristic is that the internal auditor's independence is guaranteed in determining the areas to audit; the scope of the audit; the nature, timing, and extent of audit tests; and the reporting of background information, findings, and conclusions. The concept of independence extends to the hiring, promotion, and firing of internal audit staff, and to all final decisions relating to reporting results or referring matters to appropriate external authorities.

The third defining characteristic is that the internal auditor function as a super control for the agency. The primary mission of the internal auditor is to assess risk; determine whether internal controls exist to mitigate or eliminate the identified risk; assess the design of existing internal controls; determine whether the internal controls have been placed in operation; and test the implementation and effectiveness of the internal controls. As such, the internal auditor's role is that of the principal control point in the agency because the internal auditor function is to contribute to the overall control environment by assessing the existence, functionality, and effectiveness of all other material internal controls.

The fourth defining characteristic is that the work of the internal auditor is principally for the benefit of management. Findings and recommendations are furnished to management and are designed to enable management to strengthen the agency's internal controls and thereby enhance the control environment. Broadly speaking, the function of the control environment is to protect public resources from loss and to ensure that such resources are used efficiently and effectively.

The fifth core characteristic of governmental internal auditors is that the internal audit work is conducted pursuant to authoritative standards. The principal standard-setting bodies are the Institute of Internal Auditors, the American Institute of Certified Public Accountants, and the...