KEYNOTE ADDRESS

2006 INTERNAL AUDITORS’ CONFERENCE

Holiday Inn

21st November 2006.

JOHN NERO BAC (UPNG), MBA (Qld)
OMBUDSMAN
OMBUDSMAN COMMISSION OF PNG
__________________________________________


INTRODUCTION

ADDRESS VIP’S AND PARTICIPANTS –

MINISTER FOR FINANCE & NATIONAL PLANNING, HON. JOHN HICKEY

DEPUTY POLICE COMMISSIONER, MR. JIM WAN

AUDITOR GENERAL, MR. GEORGE SULLIMAN

PRESIDENT OF INSTITUTE OF INTERNAL AUDITORS’, MR. BERNARD KISEKOL

DISTINGUISHED GUESTS

LADIES AND GENTLEMEN


It gives me great pleasure and honour to be here this morning to address you all in this second annual conference of the Institute of Internal Auditors of Papua New Guinea.

Ladies and gentlemen, it is equally pleasing to note and acknowledge the Institute’s efforts and contributions towards good governance in this country even at this early stage of its existence and this conference is one such example.

OUTLINE OF PRESENTATION

In this presentation, I wish to discuss some areas that you as auditors and accountants and all of us for that matter in our respective roles as managers, advisors, stewards and watch dogs should strive to address in the discharge of our various duties.

Changes are happening all around us and hence there is the need to be kept abreast of them. The profession must be able to cope here in Papua New Guinea amidst all these changes through the sharing of ideas and working together.

THE AREAS I WISH TO COVER INCLUDE: -

Importance of Internal Auditing

Audit Committees

Professional Code of Ethics

The Stakeholders

Prevention Better than Curing

Good Governance

Ombudsman Commission’s Role



IMPORTANCE OF INTERNAL AUDITING

Without elaborating much on areas that will be better handled by experts in the sessions that will follow, I wish to remind us all that Internal Audit is defined as:-

"An independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process".

This definition gives me, a stakeholder, comfort and assurance to know that the decisions made and actions taken by management are guided by advice including those provided by Internal Auditors, whether in the public or private sectors.

Despite the significant role it plays, internal auditing I believe has not been given the prominence and proper attention it deserves, particularly in the public sector. This is evident in many agencies where either the Internal Audit Units do exist but are inadequately resourced or are not in existence at all.

This issue is now being addressed by Government through the Public Finances (Management) Act which provides the legal framework in Sections 9 (c) – (f) and 117 for the set up and functioning of Audit Units and Audit Committees in all Government agencies that receive grants from the state and for them to be subjected to audit by the Auditor-General.

However, more effort is still required for the effective input of internal auditors. These include appropriate allocation of funds and resources by management, uncontrolled independence and of course high degree of professionalism on the part of internal auditors.

A challenge therefore to the Institute, members and all concerned parties in your various capacities is to assist in refocussing on internal auditing as one not merely of inspection, reviewing and examination of internal controls and processes to that also of assisting stakeholders in the better management of their organisations through the discharge of professional advise on how to conduct their business, management of risk and always endeavouring to find that better way of improving systems, processes and controls in order to add value as well.

This calls for professional interaction and networking with parties outside your normal environs including external auditors, internal auditors of other organisations both in the private and public sectors, experts from other professions and professional bodies.

AUDIT COMMITTEES

Audit Committees are required to be set up for all Government agencies receiving grants from the state (PFMA Sections 9, 69 & 117). One of the primary roles of Audit Committees is to assist the Secretary and Chief Executives and Management in achieving good corporate governance and should be regarded as an important management tool.

Three of the Audit Committee members will include the respective Secretary or Chief Executive of the agency, Secretary of the Department of Finance and the Auditor-General or alternates. In no case should the representative be other than a Deputy Secretary or a Deputy Auditor-General. The other members appointed should be familiar with the general operational activities of the business and hold no executive office within the department or agency.

An issue that requires review on Audit Committees from a practical operational perspective relates to their composition.

The inclusion of the Secretary of Finance and the Auditor-General or their alternates who must be none than a Deputy Secretary or Deputy Auditor-General on Audit Committees may be impractical operationally.

This is due to the high number of National Departments, Provincial and Local Level Governments and other Governmental bodies that receive grants from the state that require Audit Committees to be set up. To have these senior executives on all the Audit Committees would result in most of their time attending to Audit Committee commitments.

An alternative arrangement to reduce the number of Audit Committees without losing effectiveness is to take a sectoral approach. An example would be to set up an Audit Committee for the Law and Justice Sector that would oversee the Police, Correctional Services, Department of Justice and Attorney-General, Magisterial Services, National Judicial Services and the Ombudsman Commission.

I urge the Institute to research this and other alternatives in achieving good corporate governance. Please make your findings and recommendations known to the Finance Department as to the viability of the sectoral approach.

PROFESSIONAL CODE OF ETHICS

The Institute of Internal Auditors of Papua New Guinea has a Code of Ethics to guide and ensure members conduct themselves in an ethical and professional manner. Internal Auditors and other professionals must have high principles that must be translated into proper practical applications.

These principles include: -

Integrity

Internal Auditors must have high integrity for it is upon this that others build their trust and confidence.

Objectivity

Be objective and impartial in your judgement and assessments and do not be influenced by your own self interests and those of others.

Confidentiality


As Auditors, your stewardship role includes that of valuing and protecting information entrusted to you and in your custody. Never disclose information without the proper legal or professional need to do so.

Competency

Part of being regarded as professionals is the requirement to possess the necessary skills, knowledge and qualifications to perform the duties as an Internal Auditor.

Professionals should always strive to excel in their respective roles.


As auditors, be it external or internal or in the private or public sectors, a lot is expected of you in the quality of your reporting, advise, conduct and in all your representations. A lot is at stake and you are seen to be the comforters and assurers.

Bear in mind that as Internal Auditors and Accountants you do not represent yourselves but others as well who are the stakeholders. I am sure if the above principles, which you are already familiar with, are observed religiously in the profession will most inevitably lead to the duty of care concept.

THE STAKEHOLDERS

On that note, who then are the stakeholders?

Well, believe it or not but the whole country are the stakeholders!

The theme of the conference is appropriately titled "Meeting Stakeholders Expectations".

Stakeholders include the following: -

Government

Departments or Agencies

Provincial and Local Level Governments

Creditors

Debtors

Overseas Missions and Foreign Nationals

Donors – existing and potential

Investors

Tourists

THE PEOPLE OF PAPUA NEW GUINEA


To meet the expectations of all these stakeholders and a few others not mentioned above is a mammoth task. That reveals the high expectations of stakeholders.

What do stakeholders expect?

In short, stakeholders want the assurance and confidence that whatever the management and those in authority are disclosing to them in one way or another, is based on nothing less than the best advise and practices.

PREVENTION BETTER THAN CURE

The commonly quoted saying of "Prevention is better than cure" is an appropriate guide for the profession which traditionally had been involved in investigating events after they had occurred.

The current trend of Internal Auditors striving to add value to and improve on processes of an organisation’s operations comes hand in hand with the objective of effective risk management and controls.

It is therefore your role to attract the attention of management to identify all potential risks and then take preventive measures to minimise the occurrence of fraud, losses and mismanagement of assets to name a few.

GOOD GOVERNANCE

We hear a lot about law and order problems in this country. However, I believe we have the laws in place with order being the problem. Many people have not followed the laws by not applying them as they are meant to be.

Similarly, as auditors apply the relevant laws in your work and ensure the laws governing the operations of your respective agencies are being complied with. It is when the laws are not followed in the order they should be that fraudulent and other unacceptable events occur.

Good governance depends on the ability by all concerned parties to understand and apply the laws in place in order to achieve the desired outcomes they are intended for.

In recent times a lot has been revealed in the media and other reports of incidences involving the loss of millions in Government assets including funds meant for services to the masses.

Government in its endeavour to achieve good corporate governance embarked on some financial reforms that include the Medium Term Development Strategy.

I am confident that the Institute is also doing everything within its powers to assist the Government in this area and I commend you for it.

OMBUDSMAN COMMISSION’S ROLE

The Ombudsman Commission applies the Organic Law on the Ombudsman Commission and the Organic Law on the Duties and Responsibilities of Leadership as part of its roles to achieve good governance.

The Commission either through complaints lodged by the public or on its own initiative makes enquiries into allegations of maladministration in the public sector. In many instances, these uncover some incidences of maladministration and misapplication of Government assets. However, these are investigations that are "after the event".

The Constitution and the two Organic Laws also empower the Commission to issue Directions to prevent certain events from occurring until clarifications are sought which have resulted in savings to the country.

In order to educate the masses and the various Governmental bodies, the Commission also embarks on external relations programs.

With professional bodies like this institute working together with other similar bodies as well Governmental bodies such as the Ombudsman Commission, we will all be jointly delivering to the stakeholders.

CONCLUSION

In conclusion, let me finish by saying that as auditors, accountants and professionals in your respective fields, your professional conduct must not be compromised. Always endeavour to perform your auditing and stewardship roles with an attitude of honesty, confidence and professionally and stick to your code of ethics as much as possible.

It a mammoth task as an auditor and a lot is expected of you but I have every confidence that the Institute will deliver as it matures.

Thank you,


JOHN NERO