INTERNAL AUDIT BRIEF FOR THE MEETING OF CONTROLLER GENERAL OF ACCOUNTS WITH PR.CCAs/CCAs/CAs (I/c.) ON 17.04.2017 ON STRATEGY FOR STRENGTHENING INTERNAL AUDIT FUNCTION IN LINE MINISTREIS / DEPARTMENTS The Vilasini Ramachandran Committee constituted by the Department of Expenditure presented its Report of recommendations to the Government for strengthening the internal audit function in Central Ministries / Departments. The report also focuses on specific aspects related with skill up gradation which will be key to bringing out improvements in audit delivery. The Internal Audit function has evolved internationally and has become an important tool for sound Financial Management in the Public Sector. With increasing emphasis on accountability in sovereign governments, there is an endeavor to ensure that public funds are utilized economically and efficiently for achievement of objectives. The function needs re-alignment to ensure the expected results. The Internal Audit needs to move from traditional compliance based routine audits to Risk Based Audits in various Ministries / Departments. The emphasis needs to be on systemic improvements and performance rather than just concentrating on procedural issues under this new paradigm. The internal audit function would evaluate the functioning against the control guidelines that have been prescribed for the executive wing in order to function and to conduct its operations in a more efficient and effective manner for achievement of objectives. Internal Audit would then bring out its observations considering these specific controls. The present position of Internal Audit in line Ministries/Departments has been analysed vis-a-vis the action points emanating from the Vilasini Ramachandran Report and deliberations of the Seminar on Enhancing Effectiveness of Internal Audit: Issues & Challenges organized by the O/o CGA on 24 th November 2015. The way forward has also been prepared for each action point: Sl.No. Action point Where we are? Way forward. 1 The internal audit function should transition to Standard based practices in a time bound manner. It is recommended that Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing should be adopted in government of India. 2 To provide an effective oversight mechanism for functioning of the internal audit wings in individual ministries, it is imperative that an Audit committee is constituted in each Ministry which should be head by Secretary should include Financial Advisor, Chief Audit Executive and Heads of Program divisions of the Ministry. Subject matter experts from peer Ministries should also be associated with the committee. The Standing Audit Committees (SACs) were constituted in line Ministries/Departments in 2010 specifically to deal with C&AG paras. One of the major recommendations emerging from the deliberations of the Seminar was to expand the mandate of these SACs to include internal Audit Paras. Version 1.0 of the Generic Internal Audit Manual was issued on 30 th September, 2014. The Institute of Internal Auditors (IIA) has already been engaged to develop the Generic Internal Audit Manual (Version-2) for Central Civil Ministries / Departments after conducting of gap analysis with the Standards and related elements of the IPPF as promulgated by the IIA vide illustrative practice advisories. Department of Expenditure has been requested to issue an advisory in this regard vide this office U O dated 115 th March, 2016 followed by a DO dated 15.02.2017 from Controller General of Accounts to Finance Secretary for intervention, so that advisory be issued at the earliest. Action on part of Department of Expenditure is awaited. A Core Group of Officers has been constituted to interact with IIA on a regular basis for competent feedback and inputs. Number of meetings have been held by Core Group with IIA and IIA has now submitted a draft of Internal Audit Policies for government Internal Auditing in India which is likely to be discussed shortly. After issue of an advisory from Department of expenditure, the Audit committee would approve the internal audit charter of the Ministry (prepared in accordance with the model internal audit charter issued by Ministry of Finance), internal audit manual, Annual Audit plan and also evaluate performance of the internal audit wing.
3 Continuous professional development of internal auditors should be a priority and an annual training calendar should be developed for the officers and staff working in internal audit wings. The internal auditors should be trained in each dimension including in the use of Computer Assisted Audit Techniques (CAATs). The Memorandum of Understanding (MoU) signed by the O/o CGA with IIA-India provides for utilizing professional expertise for capacity building in Government Internal Auditors. An Annual Action Plan in this regard has been drawn up. Group A: The Half day workshop for Group A Officers on the topic Risk Based Internal Audit (RBIA) in Ministries would be held tentatively on 12 th April, 2017. The target group will be Pr.CCAs/CCAs/CAs of selected Ministries viz. Agriculture, RD, HRD, Power, Environment & Forest, MEA and MHA. The second workshop on the same topic involving other ministries will be conducted on 12.07.207. Group B: Ist course for duration of 15days of level 1 certification programme would be held from 15 th to 29 th May, 2017 at INGAF. The target group will be 40 Sr. AOs/AAOs from the Ministries identified for the half day workshop for Group A officers i.e. Agriculture, RD, HRD, Power, Environment & Forest, MEA and MHA. The learning / feedback will be utilized for incorporating appropriate modifications in structure & Curriculum of the future course. The O/o CGA has issued advisories vide Office Memorandum dated 24.04.2016 & 30.11.2016 to line Ministries / Departments for use of Computer Assisted Audit Techniques (CAATs) which may include Data Analytics applications like IDEA and Audit automation applications like TEAM MATE. The feedback in this regard is not very encouraging. Use of CAATs has to be a part of common strategy plan for continued benefits. Such workshops are proposed to be organized every year eventually to cover all Group A officers in all line Ministries / Departments. The sensitization of Group A officers is expected to provide the necessary leadership for conduct of risk Based Internal Audit in line Ministries / Departments. Through these Level 1 certification Programmes, it is expected that a pool of 120 odd resource persons would be created each year. These certified resource persons would then be used to train other staff in line Ministries / Departments. Institute of Government Accounts & Finance (INGAF) may include these programmes in their annual training calendar. The workshop / training programmes must invariably include a module on CAATs. Use of CAATs needs to be actively pursued in the interest of value addition to Internal Audit.
4 Annual Audit Plan should be developed in the context of ICRM Framework ad available audit resources. Individual Audit engagements should be carried out with reference to key risks of identified audit units and to evaluate adequacy and effectiveness of controls designed to mitigate these risks. From last three consecutive years all the line Ministries / Departments have been requested to formulate their annual audit plan with reference to key risks of identified audit units and to evaluate adequacy and effectiveness of controls designed to mitigate these risks and submit the same to the O/o CGA. The line Ministries / Departments are submitting their risk based annual audit plans to the O/o CGA. Annual Audit Plan of Internal Audit Division O/o CGA covering PAOs of line Ministries / Departments is currently being carried out by Teams of IAD, O/o CGA. Comprehensive Risk Based Internal Audit Plan for the financial year 2017-18 from line Ministries has been sought vide this office letter dated 16.02.2017. The due date for submission of the same was 15.03.2017. Line Ministries / Departments are being advised to earmark 60% of the working days for scheme audit / bank audit and balance 40% for compliance / regulatory audit. Given the shortage of the staff in most line Ministries/Departments, a mechanism needs to be evolved for facilitating utilization of professional support (from IIA etc.) and collaboration with other IAWs of other line Ministries / Departments in order to ensure the achievement of the target laid down in the Annual Audit Plan. It is proposed that considering the quality assurance aspect, the IAD staff may complement Internal Audit team of core Ministries for conducting the Internal Audit of Schemes. It is also proposed that the Internal Audit of the units selected under Audit Plan for the financial year 2017-18 by IAD will be conducted involving the team from IAW of Core Ministries.
5 Annual Audit Review of Ministry / Department should form part of the Annual Report of the Ministry and resolution of key audit issues should be a parameter in Result Framework Document of each Ministry and should be given adequate weightage. The Department of Expenditure has been requested vide U O note dated 15.03.2016 to issue an advisory so that major internal audit findings are appropriately highlighted in Annual Reports of Ministries and important findings are submitted to the Secretary of the respective Ministry. A DO dated 15.02.2017 from the Controller General of Accounts to Finance Secretary has also been sent seeking his intervention for issue of advisory at the earliest. The decision on the subject matter is awaited from the Department of Expenditure. Matter needs to be pursued. 6 Each Department must have a dedicated internal audit wing staffed by auditors and supervisors (Group A, B & C) in adequate numbers. While working out the strength of the internal audit wing, it is necessary that the assessment of work at hand is done in a realistic and scientific manner. There are almost 17 Ministries / Departments which are not having their internal audit wings, however, they mange the internal audit function by deputing the staff from other divisions. Accordingly a proposal was submitted to the Department of expenditure for creation of posts for IAWs. The proposal has been reviewed number of times and the demand after recent review submitted to the Department of Expenditure is 475 posts (Group A&B). Department of Expenditure was requested to sanction the creation of these 475 posts in Ist phase to strengthen the Internal Audit function vide U O dated 19 th November, 2015.. Matter pursued at regular intervals but decision of Department of Expenditure is awaited. Availability of adequate staff is a pre-requisite for conduct of sound Internal Audit. As an interim alternative, a mechanism for engagement of professionals / retired officers needs to be developed. 7 Settlement of outstanding internal audit Paras. On the recommendation of the CGA, Department of Expenditure issued an advisory in June 2016 to all Secretaries for conducting a special drive for settlement of pending Internal Audit Paras. Progress is being monitored and as per the Annual Review 2015-16 there are 1,24,789 internal audit Paras outstanding. The proposed inclusion of Internal Audit Paras within the mandate of the existing Standing Audit committees (SACs).
8 Use of diagnostic tool and transition of electronic Risk Assessment Software (eras) to PFMS. 9 Internal Audit Practice should continue to be manned by officials of organized accounting services but there should be segregation of duties so that objectivity of internal auditor is ensured at all times. Internal Auditors should enjoy a fixed tenure. Co-sourcing subject matter & technical expertise must be introduced where relevant. 10 Guidelines on Gender Audit of Policies, Programmes and Schemes of Government of India ITD Section vide their note dated 20.07.2015 has already requested NIC for the modification in Part A of the eras which were proposed after conducting the pilot run. ITD section has also been requested to take appropriate action for migration of eras to PFMS vide U O note dated 11.01.2016. Memorandum of Understanding between O/o Controller General of Accounts & Institute of Internal Auditors (IIA) - India has been signed and Annual Action Plan approved. A Group of Officers headed by Shri M Pran Konchady, then Additional CGA (IAD) was constituted to examine the feasibility of including Gender Audit as one of the parameters for Risk Based Internal Audit of Schemes with an initial focus on 100% women specific schemes and to recommend the framework / roadmap for conduct of Gender Audit of schemes of the Government of India. The group of officers submitted the report which was forwarded to the Joint Secretary (Gender Budgeting) vide this office letter dated 07.12.2016 eras at present accesses the data of the auditee PAO from the COMPACT server. With the migration of all PAOs to PFMS, the linkage of eras with PFMS is essential for enabling data analytics on PFMS. The Core Group of officers constituted for the purpose of providing timely competent feedback to the IIA for development of 2 nd Version of Manual will also oversee the implementation of the approved Annual action Plan of the MoU. Six pilot Ministries [Women & Child Development; Social Justice & Empowerment, Minority Affairs; Science Technology; Health & Family Welfare and Ministry of Home Affairs] were identified for pilot gender based studies in respect of the identified Schemes [Indira Gandhi Matritva Sahyog Yojna; Babu Jagjivan Ram Chhatrawas Yojna(for SC girls); Nai Roshni Scheme for Leadership Development of Minority Women; DISHA scheme; Janani Swasthya Yojna; Janani Shishu Surakhsha Yojna and Women Hostel Scheme of CRPF] during 2016-17 on the basis of scheme specific questionnaires developed. The report of Group of officers has been circulated among the pilot Ministries with the request to complete the studies by 31 st March, 2017. Based on the learning s from these pilots, Gender Audit may be extended to other Ministries / Departments.
11 The Mandate for performing internal audit function in Government of India should be clearly mentioned in the Allocation of business Rules of Ministry of Finance and of Accounting Organizations in Government of India. The function of the Controller General of Accounts has been listed in the Allocation of Business Rules 1961 incorporated vide Presidential Notification dated 27 th September, 1980. The extract from allocation of Business Rules 1961 as amended from time to time is as under: a. General principles of Government accounting relating to Union or State Governments and form of accounts and to training or revision of rules and manuals relating thereto; b. Reconciliation of cash balances of Union Government with Reserve Bank in general and, in particular, of Reserve Bank Deposits pertaining to Civil Ministries or Departments; c. Overseeing the maintenance of adequate standards of accounting by Central Civil Accounts Offices; d. Consolidation of monthly accounts, preparation of review of trends of revenue realization and significant features of expenditure etc. and preparation of annual accounts (including Summary Civil Appropriation Accounts) showing under the respective heads, the annual receipts and disbursements for the purpose of the Union Government; e. Administration of Central Treasury Rules and Central Government Account (Receipt and Payment) Rules 1983; f. Co-ordination and assistance in the introduction of management accounting system in Civil Ministries or Departments; g. Cadre Management of Group `A' (Indian Civil Accounts Service) and Group `B' Officers of the Central Civil Accounts Offices; h. Matters relating to the Central Civil Accounts staff belonging to Group C and D ; and i. Disbursements of Pension through PSBs in respect of Central Civil Pensioners Freedom Fighters, High Court Judges, Ex. M.P.s and Ex. Presidents. Matter needs to be vigorously pursued so that the Internal Audit function may be clearly mentioned in the Allocation of Business Rules.
12 Risk profiling of Ministries Line Ministries / Departments are being asked to formulate their Annual Audit Plans after a Risk Based Assessment of their Audit Universe. To that extent, some amount of risk profiling of units / schemes is being done by line Ministries while formulating their respective Annual Audit Plans. The IAD, O/o CGA has not done any risk profiling of line Ministries / Departments. However a Risk Matrix of 45 PAOs/ZAOs was prepared before finalizing the Annual Audit Plan of IAD for the financial year 2014-15. 13 Risk Register The line Ministries / Departments have been advised to maintain risk register to record identified risks, their severity and the steps to be taken towards their mitigation vide this office Memorandum dated 30 th November, 2016. As of now, IAD has no feedback on the action taken in this regard in line Ministries / Departments. 14 Asset recording and valuation IAD has no input on the maintenance of Asset Registers in line Ministries / Departments or on any initiative taken with regard to valuation of assets. 15 Audit of Asset register and valuation with reference to incorporation of Finance Accounts Physical verification of stock and maintenance of Dead Stock Register are standard Terms of Reference of Internal Audit. However, IAD has neither issued any advisories on audit of Asset Registers nor does it have any input on whether Internal audit Wings (IAWs) of line Ministries / Departments are undertaking any Internal Audit of asset registers. Tangible criteria for according weightage to the risk factors associated with specific units / schemes of the Ministry / Department may be firmed up for the purpose of risk profiling. Maintenance of Risk Register as part of Risk profiling needs to be made a mandatory exercise for conduct of risk Based Internal Audit. Government Accounting Standards Advisory Board (GASAB) has circulated a draft advisory for fixed assets accounting (07.02.2017) providing therein some formats to be used for maintenance of fixed asset registers in the field units, the line Ministries / Departments may be requested to adhere to the guidelines for maintenance of fixed assets. Internal Audit of Asset Registers maintained in terms GASAB guidelines should be included as a standard Term of Reference of Internal Audit Wings of line Ministries / Departments.