New Policy on Internal Audit (2006)

Message from the Comptroller General of Canada

Since December 2003, the Government of Canada has put in place a number of significant measures to increase accountability and transparency in the federal government and to ensure that Canadians receive tangible results and real value for their tax dollars. Chief among these was the re-establishment of the Office of the Comptroller General of Canada and the announcement of a multi-year initiative to restructure and strengthen the internal audit function across the federal public service.

It is a pleasure to introduce this transformative new Policy on Internal Audit. As a key pillar of the Government's broader efforts to improve our current management practices, this policy strengthens, further professionalizes and ensures a comprehensive, government-wide approach to internal audit that equals the most innovative public sector practices in the world.

The implementation of this new audit policy over the coming years will enhance the effectiveness of our management practices, reinforce high ethical standards in all of our activities and ensure the rigorous stewardship of public funds.

Charles-Antoine St-Jean, C.A.
Comptroller General of Canada

What is Internal Audit?

Internal audit is an independent, objective organizational function that adds value to, and improves, the overall effectiveness and efficiency of an organization's operations. In a public sector context, the internal audit function helps an organization accomplish its objectives by providing professional review and assessment, independent from line management, of risk management, control and governance processes in federal departments and agencies across government.

The internal audit function delivers greater "assurance" of due diligence and a sense of integrity, providing the knowledge that if there are problems, a skilled, professional internal audit function will help to find them.

Overview of the New Policy on Internal Audit

The Government of Canada's new Policy on Internal Audit is a key component of the Government's management improvement agenda, which sets out a vision for a more integrated, networked public sector and focuses on enhanced efficiencies, cost savings and continuous improvement with a view to provide better results to Canadians.

The new Policy on Internal Audit builds on the 2001 policy, as well as recommendations made by parliamentarians, the Auditor General and internal audit experts in the public and private sectors. It should result in a greater level of assurance to ministers, deputy ministers and deputy heads of departments and agencies, supporting their efforts to provide accountable, transparent and effective management. It also provides a clear, integrated assignment of responsibilities for internal audit activities between the heads of departments and agencies and the Comptroller General of Canada.

The 2006 Policy on Internal Audit is designed to reposition internal audit as a critical underpinning for effective and credible governance at departmental and government-wide levels. It will improve the independence, objectivity and overall effectiveness of the internal audit function across government, as well as significantly increase the number of professionally accredited internal auditors in the public sector.

Highlights:

The new policy strengthens and further professionalizes the internal audit function across government in a number of substantial ways:
- It requires the establishment of, and adherence to, stringent professional standards and the application of internationally recognized internal auditing practices.
- It provides for the recruitment of additional skilled professionals to ensure that the Government can rely on a sufficient pool of well-trained internal auditors. This will require an investment building to up to $40 million of new funding per year.
- It calls for the certification and/or accreditation of accounting and audit professionals whose duty it is to deliver internal auditing services.
- It establishes the requirement for professional training for internal auditors to develop and maintain their internal auditing skills.
The new policy increases the independence of the internal audit function from departmental operations in order to ensure that ministers, deputy ministers and deputy heads of departments and agencies have the independent and objective information that they need to mitigate risks and improve the overall performance of their organizations. This includes:
- The creation of audit committees that include a majority of members coming from outside the public service.
- The creation of a Chief Audit Executive position in departments and agencies that is separate from the operations of departments and agencies. This allows the internal audit function to provide objective opinions and advice on the effectiveness of departmental programs and management processes, and to report findings in a timely manner to heads of departments and agencies.
The new policy provides a comprehensive, government-wide approach to the way internal audit activities are planned and conducted in federal departments and agencies. It creates the conditions to ensure that priorities are clearly established, communicated and acted on in order to mitigate risks and improve performance. It also provides a clear picture of the state and effectiveness of internal controls government-wide. It includes:
- The implementation of rigorous, common methodology that is proven and internationally recognized in all departments and agencies that will guide them in the delivery of sound, professional internal audit services.
- The conduct of ongoing internal audit practice inspections and assessments by independent and qualified professionals.
- The delivery of internal audit services by the Comptroller General on broad issues that cut across federal departments and agencies, such as management practices related to human resources and contracting.
The new policy enhances the oversight, monitoring and reporting role of the internal audit function by providing added assurance and allowing sound decision-making for heads of departments and agencies, as well as improving reporting to Parliament. To this end:
- Chief Audit Executives will provide to deputy heads an annual opinion -- on risk management practices, internal controls and governance processes in place to mitigate risks in their respective departments and agencies in addition to reporting on their respective internal audit activities.
- The Comptroller General will report annually to Treasury Board on the overall state of controls, management processes and measures to mitigate risks in place across the federal government, including reporting on controls, thematic and government-wide issues, and results of internal audit work carried out within large and smaller departments and agencies.
- All final reports on internal audit activities and findings will be made available to the public in a timely manner.

As the 2006 Policy on Internal Audit requires the establishment of a series of frameworks, practices and standards across the whole of government, it will be introduced gradually in all departments and agencies starting in April 2006, and will be fully implemented by 2009.

The Office of the Comptroller General has completed an assessment of the current number of professional internal auditors in departments and agencies and has estimated future requirements to strengthen the function that include additional auditors, training, technology, professional certification and affiliations, and standardization of methodologies across all government departments. Based on this assessment, the estimated requirements will build to up to $40 million of new funding per year.

It is important to note that internal auditing activities that are conducted in a professional manner by skilled, independent internal auditors can save the Government millions of dollars in terms of opportunities for increased effectiveness and efficiency.

Role of the Office of the Comptroller General

Re-established in June 2004, the Office of the Comptroller General (OCG) oversees all government spending, provides leadership to the financial management and internal audit communities within the federal government, and ensures that standards are set and observed.

The OCG is responsible for the following activities:

Promoting stronger financial and audit controls that are essential to ensuring the rigorous stewardship of public funds and value for money to Canadians.
Overseeing all government spending, including review and sign-off on new spending initiatives.
Setting and reviewing financial, accounting and auditing standards and policies for the Government of Canada and providing leadership to ensure and enforce appropriate financial controls and cultivate sound resource stewardship at all levels across the federal public service.
Nurturing and managing the professional development of the financial and internal audit communities, and leading the introduction of modern, timely "enterprise-wide" financial information systems to track all spending and provide appropriate tools for effective scrutiny and decision-making.

For more information, please contact:

Office of the Assistant Comptroller General,
Internal Audit Sector
Treasury Board of Canada Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario K1A 0R5

Telephone: (613) 957-9654
Fax: (613) 952-3698
Email: ias-svi@tbs-sct.gc.ca
www.tbs-sct.gc.ca