External and internal audits

Transcription

1 External and internal audits

2 Key aspects in Central Bank Governance 1. set of central bank tasks key aspects 5. stakeholders 2. rules for decision making bodies 4. transparency, credibility, accountability 3. legislative and governmental issues 2

3 Agenda External Audits Internal Audits 3

4 External Audits Discussion in 2002 in the context of the new Bundesbank structure: old world : three different decision-making bodies (checks and balances) new Bundesbank structure: only one decision making body Question in 2002: Does the Bundesbank need a supervisory board? Solution: supervisory function partially filled by external parties! two layers of external control 4

5 External Audits Deutsche Bundesbank Independence but Accountability Two layers of external control External Auditors Federal Court of Auditors Statement on the proper management of the Bank but with different focus 5

6 Audit of the Annual Accounts by external auditors Legal Framework Sec 26 "Annual accounts, cost accounting" of the Bundesbank Act (3) The Executive Board shall draw up the annual accounts as soon as possible. The accounts shall be audited by one or more independent auditors appointed by the Executive Board in agreement with the Federal Court of Auditors and subsequently published. The auditors' report serves as the basis for the audit carried out by the Federal Court of Auditors. (4) To assist it in its management and administrative tasks, the Deutsche Bundesbank shall prepare a cost account. Before the start of a financial year, the Deutsche Bundesbank shall draw up a standard cost account and an investment plan. At the end of the financial year, it shall make a comparative analysis of the budgeted figures and the actual costs and investment. This analysis shall be reviewed separately by the auditors. 6

7 Audit of the Annual Accounts by external auditors Art 27.1 of the Statute of the ESCB and the ECB "The accounts of the ECB and national central banks shall be audited by independent external auditors recommended by the Governing Council and approved by the Council. The auditors shall have full power to examine all books and accounts of the ECB and national central banks and obtain full information about their transactions. Good Practices for the selection and mandate of External Auditors according to Article 27.1 des ESCB/ECB Statute 7

8 Audit of the Annual Accounts by external auditors Appointment of external auditors Selection by the Executive Board in accordance with the public rules applicable to Deutsche Bundesbank Agreement with the Federal Courts of Auditors (Bundesrechnungshof) Recommendation by the Governing Council of the ECB Approval by the EU Council (EcoFin) Completion of the contract Duration of the mandate: six years (currently: Ernst&Young) 8

9 Audit of the Annual Accounts by external auditors Scope Audit of the annual accounts: accuracy of financial reporting, compliance with the Minimum Requirements for Risk Management and Budgetary Principles Act ( Haushaltsgrundsätzegesetz ) Payments to serving and former members of decision-making bodies including their surviving dependants Comparative analysis of the budgeted figures and the actual costs and investment Reviews on behalf of the ECB s external auditor 9

10 Audits of the Federal Court of Auditors Federal Court of Auditors (BRH) is a supreme federal authority independent body for government auditing subject only to law Status of the BRH and its members is guaranteed by the German constitution (i.e. independent like a judge) 10

11 Audits of the Federal Court of Auditors Tasks of the Federal Court of Auditors examination of the financial management of the federation, its property funds and federal undertakings (public sector is obliged to conduct its business economically and efficient) audit mandate also covers social security institutions and the activities of the federation in private-law enterprises (federation is shareholder) 11

12 Audits of the Federal Court of Auditors Audit procedure Announcement of an audit On-site inspections (e. g. in premises of Bundesbank) Findings are summarised in a management letter which is sent to the audited body/bodies for comment Further procedure depends on the outcome of the contradictory procedure Submission of an annual report (public!) to the Parliament and to the Government; report is the basis for Parliament granting discharge to the Government BRH may at any time submit special reports on matters of major significance to the Parliament and to the Government 12

13 Audits of the Federal Court of Auditors Types of Audits Common/general audit (= Allgemeine Prüfung) Audit of a project (= Projektprüfung) Audit to gain information on a topic (= Orientierungsprüfung) Audit on a topic at several institutions (= Querschnittsprüfung) Audit to control the results of former audits (= Kontrollprüfung) 13

14 Audits of the Federal Court of Auditors Examples for audits at the Bundesbank Benefits for Bundesbank staff Guided value for construction: Audit of the BRH lead to a reduction of 20 % Cost accounting Organisation of the adminstration of the real property of the Bundesbank Employee suggestion system/management of ideas Cash: logistics and processing Procurement 14

15 Audits of the Federal Court of Auditors Scope of review Proper and efficient management of the bank but: Art 7 "Independence" of the Statute of the ESCB and of the ECB " In accordance with Article 108 of this Treaty, when exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and this Statute, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks." ESCB and Eurosystem's activities are out of scope (e. g. no auditing of monetary policy decisions) 15

16 Agenda External Audits Internal Audits 16

17 Internal Audits Executive Board of the DBB Member of the Executive Board: Rudolf Böhmler responsible for Administration and Premises Department Audit Departm. Human Resources Centre for Education, Training and Central Bank Cooperation 17

18 Internal Audits about 100 full time equivalents locations: headquarters in Frankfurt and 7 regional offices 2009: approx. 189 audit assignments approx. 165 reports 18

19 Internal Audits Types of audits Reliability and integrity of accounting data and other financial information derived from the accounting system Compliance with legal and internal rules for the financial and the cost accounting Financial Audit Compliance with internal rules related to the business reviewed Effectiveness and efficiency of the business processes Audit of business processes Audit of business units Compliance with general internal rules 19

20 Internal Audits Types of audits work unit audits and branch audits cross-processual compliance and general controls similar to each other process (work area) audits cross-functional processes, activities and process controls 20

21 Internal Audits Application of International Standards for the Professional Practice of Internal Auditing ( IIA-Standards ) Definition of Enterprise Risk Management COSO (ERM) Internal Audit Department integral part of Internal Control System (ICS) Since 2007 the overall audit opinion on the functioning of the ICS / ERM at the Bundesbank is part of the annual activity report of the Audit Department 21

22 Internal Audits Internal Control / Control Activities in particular and the Internal Control System in general are embedded into a company s processes. To maintain its independence and objectivity, Internal Audit is not embedded into operational processes. It is the task of Internal Audit to assess the processes and the control procedures, whereas the Internal Control System is the totality of those control procedures. 22

23 Internal Audits Risk based audit planning The risk assessment of the audit objects is a requirement for the annual risk based audit planning. It has the purpose to set up a ranking or scoring list. That means, at the end of the assessment process we have a list where the audit object with the highest risk is on top of that list. Risk assessment method is a valuation model consisting of two blocks A B Inherent Risk of the Audit Object (financial, reputational, organisationel risks) Effectiveness of the Internal Control System (time since and results of last audit) 23

24 Internal Audits Assigning a fixed weight to each risk factor (A: inherent risk of the audit object, B: effectiveness ICS) Risk Levels of the two Risk Factors distinguishing three risk levels which are assigned to each risk factor 1 - low risk 2 - medium risk 3 - high risk low exposure some exposure substantial exposure 24

25 Internal Audits Internal Control System main objectives The Internal Control System (ICS) is a process, including principles, procedures and measures, implemented to give assurance that the following objectives are achieved: Effectiveness and economic efficiency of operations Reliability and integrity of financial and management infomation Compliance with laws and regulations as well as policies, plans, internal rules and procedures 25

26 Internal Audits The Role of Internal Auditing in Enterprise-wide risk management: Play an important role in monitoring ERM, but do NOT have primary responsibility for its implementation or maintenance! Core roles Legitimate roles Roles internal audit should not undertake 26

27 Questions? 27