Audit Release: Opportunities Exist to Increase the Impact of State Agency Internal Audit Functions


Report Highlights

When internal audit functions are properly structured and resourced, they are a valuable asset for mitigating risks and improving agency performance and accountability. However, internal auditing has not been a priority in Oregon. Although the Department of Administrative Services (DAS) has the authority to create policy and a legal requirement to support audit functions, the agency has not strategically promoted the role of internal audit functions due to a number of factors. DAS has not effectively monitored, coordinated, or reported on internal audit function impacts, challenges, and resource needs to state legislators and other stakeholders.

Background

Internal audit functions help organizations achieve their objectives and improve performance. The Oregon Legislature determined internal audit activities within state government should be coordinated to promote effectiveness, and directed DAS to adopt rules and set standards to ensure the integrity of internal auditing.

Purpose

The purpose of this audit was to determine the steps DAS should take to more effectively coordinate state internal audit functions, and what actions can be taken to increase the impact of these critical functions.

Key Findings

  1. The effectiveness of an agency’s internal audit function is defined by the tone at the top. In general, the internal audit function at state agencies in Oregon is not prioritized or well understood by agency management and the Legislature. Many current challenges and deficiencies have persisted for more than two decades.
  2. Internal audit independence and impact is directly influenced by the effectiveness of the audit committee and the committee’s relationship with agency leadership. Internal audit functions in some state agencies do not follow important elements of professional audit standards that ensure independence from management. These deficiencies reduce the effectiveness of the functions and leave agencies more vulnerable to fraud, wasted taxpayer dollars, and other substantial risks.
  3. Poor guidance and a lack of strategic management and effective coordination from DAS has contributed to internal audit challenges at state agencies. DAS reporting on statewide internal audit activities and impact could be a valuable tool for both internal auditors and policymakers, but DAS reports are often inaccurate, confusing, and uninformative.
  4. Many internal audit functions are staffed by well-trained, qualified professionals who make contributions to the agencies they serve despite governance and resource challenges. With additional emphasis and resources they could increase their value and return on investment potential.

Recommendations

We include 16 recommendations to DAS intended to enhance the value and impact of state agency internal audit functions. DAS agreed with 13 of 16 recommendations. The agency declined to say whether it agreed or disagreed with three recommendations.

 

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Internal Auditor RePost: Auditing what matters

…some internal auditors are torn between performing traditional internal audit activities — the time-honored “tick and tie” procedures — and activities that contribute more directly to value creation. “Both those activities are important,” says Larry Baker, a senior leader in internal audit, enterprise risk management, and strategic planning in Oklahoma City. “Even when management is convinced the organization is doing everything possible to ensure that a process is working effectively, internal audit still needs to do an independent audit of the controls that make management feel so comfortable.”

Jane Seago explores ways that internal auditors can reexamine how they approach risk and prioritize audit topics that will most benefit an agency. Read more here.

 

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ALGA RePost: Opportunities for Improvement: Risky audit topics to avoid

…Topics to avoid always sound good to a ‘somebody’: elected officials, agency directors, newspaper editors, green auditors, or even you. Yet these topics run the risk of wasted effort, embarrassment, loss of credibility, or lawyers.

I always keep in mind the goal of adding maximum value with each topic: Producing audits that leverage large performance improvements in government organizations to benefit the public. If the topic can’t compete with others on your list, then ask these ‘somebodies’ how they think their topic will produce on-going benefits for the public.

Choosing audit topics carefully is of paramount importance to undertaking an audit that can bring benefit to an agency and to the public. Part of knowing what to choose is knowing what to avoid; after all, all that glitters is not gold. Gary Blackmer, former Director of the Oregon Audits Division, shares some sage and straightforward advice with the Association of Local Government Auditors (ALGA ) on avoiding audit topics that look flashy but might not contribute anything of value to the general public, or to the agency being audited.
Follow the links above, or read more here!
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