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IIA Sees Need for Public Sector Audit Committees

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July 21, 2014

The Institute of Internal Auditors wants more public sector entities to establish independent audit committees.

The IIA has released a new report, “Global Public Sector Insight: Independent Audit Committees in Public Sector Organizations,” making the case for the need to establish such committees.

The document also provides how-to information on developing an audit committee charter for public sector entities and ensuring that the responsibilities are appropriate and clearly defined. As the process moves forward, the report also recommends ways to assess the audit committee’s own performance.

The IIA report points out that a well-performing audit committee can benefit a public sector organization in many ways. For example, it can facilitate well-informed, efficient, and effective decision-making; promote and monitor an ethical culture; ensure compliance with a well-designed code of conduct; oversee an effective system of risk oversight and management; establish an efficient internal control system; monitor internal and external reporting of financial and nonfinancial information; and promote effective communication with internal and external audit and assurance providers and respond appropriately to matters they raise.

The document also provides a model audit committee charter that can be used by public-sector organizations that are looking to create an audit committee, along with the appropriate knowledge and expertise for the audit committee chairs and members.

The report recommends that audit committee members should receive training so they will understand the organization’s mission, current issues, structure, relationships, culture and key risks. An audit committee should know about the government environment—particularly any accountability structures—along with any relevant legislation or other rules governing the organization.

The report recommends way to address oversight of the organization’s values and ethics, governance, risk management, internal auditing, external assurance review, management action planning, financial statements and public accountability reports. The document also includes a glossary of terms.

At a time when the financial integrity of so many public sector entities has been called into question, the need for independent audit committees has never been greater to make sure that public funds are being spent wisely and honestly.

2 Comments

Thank you for reporting on the release of a new report by the Institute of Internal Auditors (IIA), Global Public Sector Insight: Independent Audit Committees in Public Sector Organizations, urging public sector entities to establish independent audit committees.

Earlier this month, the International Federation of Accountants and the Chartered Institute of Public Finance and Accountancy issued International Framework: Good Governance in the Public Sector, to encourage more effective public sector governance (available on the IFAC website, www.ifac.org in Publications & Resources).

This Framework seeks to help improve and encourage effective public sector governance. The Framework encourages better governed and managed public sector organizations by improving decision making and the efficient use of resources. It argues that enhanced stakeholder engagement, robust scrutiny, and oversight of those charged with primary responsibility for determining an entity's strategic direction, operations, and accountability leads to more effective interventions and better outcomes for the public at large.

The Framework supports the IIA's report by pointing out that "it is good practice for public sector governing bodies to establish an audit committee or equivalent group or function." The Framework, "the audit committee provides another source of assurance on an entity's arrangements for managing risk, maintaining an effective control environment, and reporting on financial and non-financial performance."

We believe that both documents, in tandem, are very useful for public sector entities that wish to further improve their governance arrangements, including the effectiveness of the governing body and audit committee.

Posted by: vtophoff | July 25, 2014 10:26 AM

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Several US Government Departments, e.g., Defense (and its major parts), Health and Human Resources, Homeland Security, SSA, are larger than the largest "Fortune 500" publicly-held companies in revenues and/or assets. Oher cabinet agencies are generally within the upper half of the "Fortune 500." There is no reason why such large entities should not have an Audit Committee with members meeting the qualifications of Sarbanes-Oxley and other guidance.

The same goes for all states and local governments with populations of say >250,000.

Bert T. Edwards, CPA, CGFM, CGMA berttedwards@mediacombb.net Former CFO/Asst. Secretary, US State Dept., 1998-2001

Posted by: berttedwards | July 22, 2014 2:50 PM

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