Cooperation on Audit Standards, Internal Auditors and Supreme Audit Insitutions

Beryl Davis, Director, Standards and Guidance, Institute of Internal Auditors and Bonnie Derby, Senior Auditor of the GAO discussed cooperation on audit standards between internal auditors and supreme audit institutions at the ICGFM Winter Conference. The presentation described INTOSAI GOV 9150 Coordination and Cooperation between SAIs and Internal Auditors in the Public Sector paper.

Ms. Derby introduced the four cornerstones of good governance: public officials; the governing body; internal auditors; and external auditors (SAIs). She concluded that the relationship between internal auditors and SAIs is both critical and beneficial to good governance and the effective use of public resources.

Ms. Derby described the evolution of audit standards, and the roles and responsibilities for internal audit and supreme audit institutions.

According to INTOSAI GOV 9100 (Guidelines for Internal Control Standards for the Public Sector), internal auditors examine and contribute to the ongoing effectiveness and efficiency of the internal control structure through their evaluations and recommendations and therefore play a significant role in effective internal control. Management often establishes an internal audit function as part of its internal control framework. In this tradition, the role of internal auditors is a critical part of an organization's internal control structure.

Ms. Derby introduced the benefits of coordination including:

• Strengthen mutual accountability


• Improved risk management


• More efficient audits

Risks of cooperation on audit standards include:

• Compromise on confidentiality


• Possible conflict of interest


• Use of different professional standards

Ms. Davis advocates the convergence of audit standards. She described the coordination and cooperation on these standards including:

• Communication of audit planning and audit strategy


• Collaborating on certain audit procedures, such as collecting audit evidence or testing data


• Communication of audit reports to each other

Ms. Davis suggested that internal and external auditors could use certain aspects of each other’s work to determine the nature, timing, and extent of audit procedures to be performed. She surveyed the audience to determine that there was not significant coordination between internal and external audit in most countries:

• 24% use each others work, 69% do not


• 18% share training programs 64% do not


• 34% share reports , 52% do not


• 37% work together on strategy, 41% do not

Ms. Davis advocated cooperation between internal and external audit throughout the entire audit lifecycle. She emphasized that assessment and communication should be documented in respective audit documents.

Derby davis coordination et coopération entre les sai et les auditeurs internes du secteur public

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Derby davis coordination and cooperation between sa is and internal auditors in the public sector

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Derby davis coordinación y cooperación entre las instituciones de auditoría suprema (sai) y los auditores internos en el sector público

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Convergence of Public Sector Audit Standards

Jeanette Franzel, Managing Director, Financial Management and Assurance GAO was the moderator for the panel. The session started with an overview by Kelly Anerud, Senior Technical Manager, The International Federation of Accountants (IFAC).

Ms. Anerud described how International Organization of Supreme Audit Institutions (INTOSAI) worked with the International Standards of Auditing with the International Auditing and Assurance Board (IAASB). She described how the "clarity" project enabled the convergence of public sector audit standards. She showed the INTOSAI and IFAC structure for developing standards and how these standards were rationalized.

Mr. Anerud described the differences between private and public sector audit including:

• Terminology differences


• Broader role of government audit, especially in performance


• Inability for the government auditor to "withdrawal"


• Need for confidentiality in private sector audit vs. transparency in public sector


• Differences in materiality in government and what public expects to see reported

Jan Van Schalkwyk, Acting Corporate Executive from Auditor-General of South Africa described lessons learned. He described how audit is critical to democracy. Mr. Van Schalkwyk described the adoption audit standards by the Government of South Africa. Adoption of any standards in government requires legal standing and legal reform. He described challenges and lessons learned in adopting the INTOSAI standards. Mr. Van Schalkwyk pointed out that audit is critical to improving the lives of citizens.

Gail Flister Vallieres, Assistant Director, Financial Management and Assurance GAO described the move from the US "yellow book" standard to INTOSAI and international audit standards. Ms. Vallieres described how GAO could not immediately move to INTOSAI standard. Instead, GAO is sequencing a convergence to the standard. This process was facilitated when the AICPA US private sector auditing converged with ISA. She showed how the audit standards consist of basic accounting principles with standards specific to the public sector.

The exposure draft of the yellow book is available at the GAO web site.

Convergence of public sector audit standards

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Convergencia de los estándares de auditoría del sector público

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Convergence des normes d’audit dans le secteur public

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Jess Ford of GAO on US Government Assistance to Mexico

by Fernando Ruiz

International Consortium on Government Financial Management (ICGFM) held a luncheon in the Carnegie Mellon Endowment for International Peace on Wednesday, September 8. The speaker was Jess Ford of the Government Accountability Office (GAO) who spoke about United States assistance to Mexico in the ongoing fight against the drug cartels on the Mexico-US border.

The essence of Mr. Ford’s presentation was the management of aid going to the Merida Initiative which is a joint program between the United States and Mexico to combat the threats of drug trafficking, and money laundering on the border. According to Mr. Ford, since 2007 the United States has been ramping up its aid to Mexico and Central America in order to fight drug trafficking. US assistance has been heavy on equipment and technical assistance such as the training of police.

The objective of the aid has also shifted and is now concentrated on judicial reform, human rights and community development. The GAO’s main role has been speeding up the pace of assistance delivery which has been very slow. As of March 2010, only 46 percent of the funds had been released and the program was signed into law in June of 2008.

Some of the difficulties lie in the State Department which has been the overseer of the program. It simply has not had a modern enough system to track the status of the funding and could only track outputs with no outcome measurements or targets. Several other government organizations track the status and data on the program but none of them share a standard language and methodology, further exacerbating the problem.

Another major concern in this effort according to Mr. Ford is the lack of a consistent strategy by Mexico and other Central American countries to combat drug trafficking.

Mr. Ford concluded with his “lesson learned” about the program and its funding. He placed an emphasis on the need to build institutional capacity for the program and properly train personnel.

The Challenges of Realigning US Foreign Assistance with US Foreign Policy Goals

Denise Fantone from the United States Government Accountability Office (GAO) provided a perspective on the American government plan for transitional diplomacy. The F Bureau was created to reform and consolidate State Department and USAID activities and enable performance management.

ICGFM Presentation on State-F Process

Ms. Fantone described lessons learned in culture change in government including the need for workforce management and two-way communications. Documents referenced during the presentation included:

• Foreign Aid Reform: Comprehensive Strategy, Interagency Coordination & Operational Improvements Would Bolster Current Efforts
  GAO-09-192 (April 17, 2009)
• Foreign Assistance: State Department Foreign Aid Information Systems Have Improved Change Management Practices but Do Not Follow Risk Management Best Practices
  GAO-09-52R (November 21, 2008)
• Delegation of Authorities to the Director of Foreign Assistance
  GAO B-316655 (October 29, 2008)

U.S. Stimulus: Mismanagement, Fraud and Waste Expected

Is a financial services stress test a real test when it was announced, up front, that no institution would fail? These were some of the questions posed by David M. Walker, President & Chief Executive Officer, Peter G. Peterson Foundation, a the 23rd Annual ICGFM Conference.

Mr. Walker emphasized that "transparency and accountability is good, but not good enough." The United States government does not have a plan to put its own financial management management house in order, according to Mr. Walker. This is a problem for every country in the world

David Walker addressed some of the key factors that led to the current economic situation at the Known for his outspoken observations Mr. Walker, the former Comptroller General of the United States discussed why the financial crisis has had such a global impact and the impact developed and developing countries.

He said that there has been far too much "laggardship" instead of leadership in the public and private sectors in the United States.

Mr. Walker has also been elected as Chairman of the United Nations Independent Advisory Committee. As President and CEO of the Peter G. Peterson Foundation, Mr. Walker was free to say what he wasn't able to do while running the Government Accountability Office. The foundation recently released a report on America's long-term economic perspectives in the international arena.

He pointed out the effects of non typical business cycle challenges , primarily with financial institutions through the bursting of the housing bubble. This generated a ripple effect to other economic activities like the automobile sector. Mr. Walker spoke about how lenders assumed that housing prices would continue to rise and did not exercise good judgement on loans.

Mr. Walker pointed out the lack of transparency in the system. He spoke about the changes to financial instruments that were too complex to borrowers. Governments de-regulated and were not involved in oversight. Greed and short-term thinking further added to the problem. The notion of "being too big to fail" proved to be incorrect, particularly industry icons and financial services.

Only 1/3 of the stimulus package in the United States is related directly to economic stimulus : "timely, temporary and targeted," according to Mr. Walker. Most of the stimulus package relate to other congressional wishes. "We don't know what we are going to get from the money," according to Mr. Walker. There needs to be conditions up front because "once the money flows - it's too late. " Without the appropriate systems and controls up front otherwise there will be fraud, waste and mismanagement.


Mr. Walker, a subject of the documentary I.O.U.S.A., pointed out the the $40 Trillion in long-term "off budget sheet" liabilities for social services in the United States is not accounted for in the deficit. He believes that social security is in a negative cash flow situation or will be within the next 8 years. Today, 50% of the debt is held by foreign debtors.

Mr. Walker pleaded for changes in the United States system that doesn't work. Fundamental reform is needed, in particular to introduce tough budget controls so that Congress cannot spend without knowing the consequences, reform current social services programs and the tax system. The government needs to be more future focused. Better stewardship is needed.

Professional politicians are not inclined to make needed changes and advocate outcome-based measurements.