Reform of inspection functions in the context of internal audit development: Ukraine experience
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Transcript of Reform of inspection functions in the context of internal audit development: Ukraine experience
Reform of inspection functions in the context of internal audit development: Ukraine
experience
Sergey Chernutsky State Financial Inspection, Ukraine
Since Soviet TimeControl and Revision Administration within the MoF Ukraine
1993State Control and Revision Service (CRS) set up
2000 Main CRS – central public administration authority
Since 2004Implementation of new forms of control (audit, inspection of purchases)
2010Main CRS is reorganized into State Financial Inspection
Since 2005Number of supervised institutions expands(enterprises of public and utilities sector)
STAGES OF DEVELOPMENTof State Financial Inspection in Ukraine
Since 2005 Beginning of the PIFC reform
Слайд 1
STATUS of the State Financial InspectionCentral public administration authority, coordinated in its activities
by the Cabinet of Ministers of Ukraine through the Ministry of Finance
Defining priorities for the State Financial Inspection and approving Action Plans
Cabinet of Ministers of Ukraine
Ministry of Finance of Ukraine
Discussing draft procedures developed by the State Financial Inspection and submitting them for consideration to the Cabinet of Ministers
Making recommendations to the Prime-Minister on appointment of the Chair of the State Financial Inspection and its deputies
Approving structure and negotiating the organigram and budget of the State Financial Inspection
State Financial Inspection
Coordinated by means of
Defining the procedures for exchange of information between the State Financial Inspection and the Ukraine MoF; receiving reports on performance of the Service
Issuing orders and assignments on matters within the scope of the State Financial Inspection
Слайд 2
STRUCTURE
State Financial Inspection in the Autonomous Republic of Crimea
State Financial Inspections in 24
Oblasts
State Financial Inspection in Kiev
State Financial Inspection in Sevastopol
Regional subdivisions in districts and cities, or interregional integrated State Financial Inspections in districts and cities
STATE FINANCIAL INSPECTION OF UKRAINE
Слайд 3
SUPERVISED INSTITUTIONS
Ministries and other central and local public administration authorities, budgetary institutions, public funds, enterprises and organizations that
receive funds from budgets of all levels and public funds
Economic entities in public sector, enterprises and organizations that use public assets or utilities (since 2005)
Funds of compulsory public social insurance, as well as enterprises, institutions and organizations receiving means from these funds (since 2011)
Слайд 4
INSPECTION
STATE AUDIT
In form of revisions
2004 – audit of implementation of budget programs
2009 – audit of individual economic operations run by
monopolist enterprises
MONITORING OF PUBLIC PURCHASE
consists in operative monitoring and analysis of tender procedures
2007 – audit of implementation of local budgets
AUDIT OF PUBLIC PURCHASE
consists in analysis of compliance with the law on public purchase
AUDITS IN WORK GROUPSupon a Government decision, by employees of central public
administration authorities
INVOLVEMENT OF SPECIALISTS FROM THE INSPECTION IN CHECKS RUN BY THE LAW ENFORCEMENT AGENCIES
PARTICIPATION IN REVISION COMMISSIONS
of entities with over 50% of state share in their chartered capital
2006 – financial audit of activities of public enterprises and utilities
TYPES AND FORMS OF PUBLIC FINANCIAL CONTROL EXERCISED BY THE STATE
FINANCIAL INSPECTION
Since 2006
Since 2006
Since 2006
Since 2006
Since 2004
Слайд 5
BEGINNING OF THE REFORMS
2005
The Government approves the Concept of development of public internal financial control in Ukraine
State Financial Inspection is in charge of reform in the field of internal control and internal audit
Слайд 6
PREMISES FOR MODERNIZATION OF INSPECTION
Introduction of public internal financial control in Ukraine (reform began in 2005)
Low performance of revisions (improved financial discipline in the state)
Unjustifiable planning of controls and revisions based on regularity principle (once in 2-3 years)
Large labor costs associated with revisions (number of entities reaching about 90,000, while the number of inspectors reaches about 8,000)
Revealing insignificant infringements and deficiencies that do not lead to a loss in resources and are primarily caused by accounting errors
Слайд 7
,
WAYS FOR MODERNISATION OF THE INSPECTION
Making the inspection a tool to reveal substantial infringements and financial frauds by means of:
1. Organizational and structural changes.
2. Transition to risk-oriented planning and inspection.
3. Aiming to reveal substantial infringements and abuses.
4. Development of procedures, making corrections to competences of the State Financial Inspection.
5. Respective training for the inspectors.
Слайд 8
State Financial Inspection Main Control and Revision Administration
reorganized into
Reorientation of functions of the Inspection
64 units of institutional control eliminated in all ministries and other central public administration authorities (about 1,500 persons)
Слайд 9
REDUCTIONNumber of regional units (at district level) Number of public employees
State Financial Inspection agencies
Public Control and Revision
Service agencies
State Financial Inspection agencies
Public Control and Revision
Service agencies
165483 59938192- 65,8 % - 26,8 %
6.6 integrated divisions per oblast on average
19.3 divisions per oblast on
average
Reorientation of functions of the Inspection
Слайд 10
Risk-oriented approach to planning
•There is an independent unit for monitoring of risk operations created within the State Financial Inspection
•Methodology for accumulation and assessment of risks was developed within the World Bank project “Modernization of public finances”
•Concept for risk-oriented selection of audited entities was approved while planning control and revision activities
•An electronic database is built which accumulates information on activities of audited entities received from different sources
•Analysis of database for presence of most risky entities and economic operations
•An internal disposition of the State Financial Inspection provides that only those entities shall be selected for audit who show some risks of infringements, which can lead to losses of public resources
•Reporting on performance of the State Financial Inspection agencies and approaches to assessment of their activities have been amended
Слайд 11
Amount of budget allocations (appropriations)Amount of budget allocations (appropriations)
Cash expenditures on capital repairs, reconstruction and restoringCash expenditures on capital repairs, reconstruction and restoring
Cash expenditures on capital construction Cash expenditures on capital construction ((purchasepurchase))
Public purchase from one actor Public purchase from one actor / / economic entities – private individualseconomic entities – private individuals
Primary cost of fixed assets Primary cost of fixed assets ((houses and buildings, machinery and houses and buildings, machinery and equipment, transport vehiclesequipment, transport vehicles))
Growth in stocksGrowth in stocks ( (materials and food stuff,materials and food stuff, little-value and wearing articles, little-value and wearing articles, and other stocksand other stocks) ) compared to the previous yearcompared to the previous year
Risks for budgetary institutions, part І
Слайд 12
Risks for budgetary institutions, part 2
Lower cost of non-negotiable assets Lower cost of non-negotiable assets ((sold, transmitted free of chargesold, transmitted free of charge, , discarded as discarded as useless, etc.useless, etc.))
Accounts payableAccounts payable / / receivablereceivable
Own revenuesOwn revenues ( (payment for services offeredpayment for services offered))
Information from law enforcement agencies on the amount of supposed material Information from law enforcement agencies on the amount of supposed material damage damage ((lossloss) ) or interactions with seemingly fictitious economic entitiesor interactions with seemingly fictitious economic entities
Information from other external sources on amount of supposed material damage Information from other external sources on amount of supposed material damage (loss) (loss)
Information from structural units of the State Financial Inspection on the amount Information from structural units of the State Financial Inspection on the amount of supposed material damage (loss) of supposed material damage (loss)
Слайд 13
Risks for economic entities (non-budgetary institutions)
IncomeIncome ( (proceedsproceeds) ) from marketing of products from marketing of products ((goods, works, servicesgoods, works, services))
Net loss Net loss
Primary cost of fixed assets Primary cost of fixed assets
Lower cost of assets due to their loss, elimination, reappraisal, losses from Lower cost of assets due to their loss, elimination, reappraisal, losses from lower utility, other changeslower utility, other changes
Ratio of other operational incomes Ratio of other operational incomes ((i.e. from activities other than main onesi.e. from activities other than main ones) ) within the total amount of incomes from operational activitieswithin the total amount of incomes from operational activities
Capital investments Capital investments ((capital construction, capital repairs, purchase capital construction, capital repairs, purchase ((manufacturingmanufacturing) ) of fixed assets, etc.of fixed assets, etc.))
Long-term financial investmentsLong-term financial investments
Ratio of reserve of doubtful debts in the total amount of receivablesRatio of reserve of doubtful debts in the total amount of receivables
Public purchase from one actor or from economic entities – private individualsPublic purchase from one actor or from economic entities – private individuals
Слайд 14
Risk Information source Risk criteria Degree of risk Score
Cash expenses on capital repairs, reconstruction and restoring
Report on inflow and use of resources from the general fund (form no. 2д)The indicator is defined as a total for 3 years
Over 5 mln Hryvna High 5
1 - 5 mln Hryvna Middle 0.5
Less than 1 mln Hryvna
Low 0.05
Cash expenses on capital construction (purchase)
Report on inflow and use of resources from the general fund (form no. 2д)The indicator is defined as a total for 3 years
Over 10 mln Hryvna High 5
3 - 10 mln Hryvna Middle 0.5
Less than 3 mln Hryvna
Low 0.05
When the amount of scores is the same, the priority for inclusion in the plan is given to that institution where the number of high risks is the biggest
Public purchase from one actor Bulletin of public purchaseThe indicator is defined as a total for 3 years
Over 3 mln Hryvna High 5
500,000 - 3 mln Hryvna
Middle 0.5
Less than 500,000 Hryvna
Low 0.05
Table of risks
Слайд 15
Sources of information on Sources of information on risks of probable financial risks of probable financial
infringementsinfringements
Letters from citizens
Databases of public administration
authorities
Information from law enforcement and other
agencies
Hot-line
Analysis of previous audits
Laws and procedures concerning financial or licensing matters
Mass
Media
internet
Reports from the
institutions
Слайд 16
Most information is collected and analyzed by hand. This process is not automated.
There is an established form of query for information from a supervised institution (for budgetary and non-budgetary
institutions and revisions of local budgets), which defines a typical list of documents to be used while planning control and
revision activities
HOW TO ACCUMULATE INFORMATION ON RISKS
Слайд 17
OPPORTUNITIES FOR ANALYSIS OF ADDITIONAL RISKS
Provided that the process is automated, one could use the following risks:
Presence of precious assets on the books, which are not connected with the main activities of an institution (or not used)
Complex regulations for inflow and outflow of resources
Involvement in state programs and programs financed from other financial sources
Presence of foreign economic activities
Benefitting from direct state support, means from the central or local budgets
The institution either benefits from a monopolist status, or is on a strategic list important for the state
Слайд 18
USE OF INFORMATION OF INTERNAL CONTROL AND AUDIT
• CHU information on quality assessment of internal audit units
• Information on reliability of internal control system
Low quality of IA activities, unreliable IC
Risk for an inspection
Слайд 19
Number of reviewed institutions
80,1
60,652,5 52,7 47,3
37 34,628,7 28,3 31,9
16,6 15,6 15,3 14,3 12,5
0
10
20
30
40
50
60
70
80
90
100
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
тыс. ед.
Уменьшение количества контрольных мероприятий
Audit performance
12 473
14 333
12 830
11 633
95,7
75,5
10 000
11 000
12 000
13 000
14 000
15 000
2010 год 2011 год
количество
0
20
40
60
80
100%
количество охваченных контролем объектов
количество объектов, на которых выявлены финансовые нарушения, что привели к потерям
удельный вес предприятий, учреждений и организаций, на которых выявлены нарушения, что привели к потерям
11,4%
37,6%
52,4% 53,3%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
40,0%
45,0%
50,0%
55,0%
2009 год 2010 год 2011 год январь-апрель2012 года
Ratio of financial infringements leading to losses in the general amount of infringements
15,5%
9,7%
5,3%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
2009 год 2010 год 2011 год
Ratio of low-performance audits in general number of audits
RESULT OF RISK-ORIENTED SYSTEMСлайд 20
Within the World Bank project “Modernization of state finances”, to create an automated data base to accumulate risks
of probable infringements
To make amendments to the legislation in order to eliminate current restrictions, according to which an unscheduled revision
can only take place subject to a court award
FURTHER STEPS
Слайд 21
Sergey Chernutsky Sergey Chernutsky [email protected]@dkrs.gov.ua