Internal audit will be different

 From November 4 to 7, the Institute of Internal Auditors (IIA) Malawi held its annual lakeshore conference at Sun ‘N’ Sand Holiday Resort in Mangochi.

The theme of the meeting was ‘Resilience in Turbulent Times.’

This article, therefore, provides an overview of the importance of the internal audit function as outlined by the German Agency for International Cooperation’s (GIZ) assistance to the strengthening of the internal audit function.

The article also discusses how the process of digitalisation changes the auditing profession.

Internal controls can be regarded as one of the foundations of good governance in the country and the first line of defence against improprieties. They provide the public with reasonable assurance that improprieties, should they occur, will be made apparent and appropriately addressed.

Internal audit is an integral part of the internal management controls. The internal audit function helps the government to accomplish its policies through a systematic approach to evaluate and improve the effectiveness of risk management, control and governance processes.

Good financial governance, of which the

 internal audit function is a key element, is a prerequisite for achieving the objectives of Malawi 2063, the country’s long-term development plan and the United Nations Sustainable Development Goals (UN SDGs).

Promoting good financial governance and supporting the Malawi Government’s Public Finance Management (PFM) reform agenda is a key building block of Germany’s development cooperation with Malawi. There is a long-standing cooperation between the Central Internal Audit Unit (Ciau) and GIZ.

In 2013, GIZ assisted Ciau in the drafting of an Internal Audit Policy, Internal Audit Act and a Charter for the Independent Internal Audit Committees, which are unfortunately dysfunctional at the moment.

In 2014, GIZ helped Ciau to adopt, in line with international auditing standards, a risk-based internal audit (RBIA) approach. In 2016, GIZ supported the then University of Malawi’s The Polytechnic, now Malawi University of Business and Applied Sciences (Mubas) to develop a curriculum for a bridging course for internal auditors to qualify for the enrolment in the bachelor of commerce in internal auditing (Bcomia) programme.

Additionally, GIZ financially sponsored 20 internal auditors from the Internal Audit Service to pursue the bridging course and thereafter, the degree programme. Nineteen out of 20 auditors succeeded.

Currently, the GIZ assistance is focused on assisting Ciau to develop and introduce a continuous auditing mechanism. The continuous auditing mechanism is what is rightly called a disruptive technology. It shifts the auditing of transactions to automated processes with a near real-time auditing of the transactions.

The system can directly

 alert the audit division as soon as any form of irregularity is detected. Transaction audits based on the automated filtering of anomalies in near real-time have a huge potential to curb corruption and the embezzlement of funds.

Looked at from a broader perspective, continuous auditing is part of the process of digitalising PFM workflows. The Malawi 2063 rightly emphasises that the digitalisation of workflows is a key building block to increase the integrity and efficiency of the PFM system.

The process of digitalisation will fundamentally change the auditors’ responsibilities and the professional requirements. A South African journal recently stated that “the next three to five years are likely to see South Africa’s auditing landscape so dramatically transformed that it will leave the field unrecognisable”. This is also true for Malawi. The future auditor will be different from today’s auditor.

IIAM as the auditors’ professional organisation has a key role to play in the process of digitalisation. It has to provide training for auditors in the required “digital skills.” Equally important, it has to define and uphold ethical auditing standards in a changing professional environment. Upholding and enforcing professional ethics are a core responsibility of professional organisations.

The applicable auditing standards are derived from the national laws such as the PFM Act, and the internationally recognised auditing standards.

We welcome the inclusion of a broad mandate for the Department of Internal Audit and the establishment of audit committees in the ministries, departments and agencies and also non-public officer members.

Internal auditing is not just financial auditing. The internal audit function is an oversight mechanism of the effectiveness of the internal control systems. An additional separate Internal Audit Act would further strengthen the internal audit function, in particular by emphasising the auditing of non-financial governance, risk management and control processes which are not covered in detail in the PFM Act.

What counts most, though, is the accountability of all duty-bearers, an uncompromising work ethics and, above all, the political commitment to implement audit findings and recommendations