— Please tell us about the outcomes of your visit to Ukraine and results of the audit in MoD Ukraine.
— As part of the UK’s ongoing support to defence reform and good governance an external quality assessment (EQA) of the Internal Audit Department (the Department) of the Ministry of Defence (the Ministry) was conducted recently. The assessment has recently concluded and we believe that the Ministry, Department and the Director of the Internal Audit Department (the Director) are leading advocates of internal audit practice in the Ukrainian central government sector. Stakeholder interviews have informed this. The actual request to undertake this EQA against the International Professional Practices Framework ) is just one example of how the Director, and the broader Department, is keen to learn from international good practice and thereby improve service delivery and value to the Ministry. We support this approach and the Defence Minister’s willingness to open the Department to review.
We believe that the Ministry of Defence is performing particularly well in a number of areas. We were most impressed by:
- The leadership, energy, vision and drive of the Director of Internal Audit Department in delivering a professional service to the Ministry. We believe the Director should be congratulated.
- The commitment of the Ministry to transform the Department based on the institute of Internal Auditors International Professional Practices Framework, good practice and consistent with the direction outlined in the Strategic Defence Bulletin.
- The introduction and planned piloting of new types of internal audit engagements more focused on a risk based approach, the Ministry’s Internal Control Standard (developed by the Department of Internal Audit) and Anti-Corruption Programmes later in 2017.
- The diligence of the internal audit practices at an engagement level for planned work. These are thorough, with individual internal auditors and internal audit engagements following working practices that would be recognisable to UK MOD.
- The establishment of a small Information Technology audit team. This is an expanding area for all internal audit teams across the world and its importance will only increase over time.
- The focus on training, education and personal development. This aims to equip the Department’s internal auditors with the necessary knowledge, skills and experience to deliver an effective and professional service to the Ministry based on international standards. The Director has also invited colleagues from related bodies, such as the Accounting Chamber, Ministry of Finance, State Audit Service etc., to attend events.
— Please specify what kind of changes/transformations MoD Ukraine might implement following your audit inspection?
— In total, we assessed the Department against relevant areas within the International Professional Practices Framework. We are pleased to report that the Department generally conforms to 30 of these and partially conforms to a further 20. This is an impressive result, considering that the Department has existed for a short period of time and there is no current requirement across central government to conform to the International Professional Practices Framework.
We believe that further progress is required in a number of areas, including:
- Developing more effective prioritisation and communication mechanisms within the six monthly Department planning processes, to ensure that the impacts of unplanned work are fully understood, recognised and agreed by senior stakeholders. Excessive unplanned work risks diversion of Departmental resources away from higher risk, strategic internal audits.
- Moving away from legacy types of internal audit, such as revision work, to newer, risk-based methods, based on international good practice and the International Professional PracticesFramework. We recognise that this evolution has clearly commenced, and that the Ministry is ahead of other parts of central government in doing this. We commend this, but note that further embedding is needed.
- Institutionalising western standards across the wider Ministry. We observed that many in senior leadership positions still have a limited understanding of the true value of effective internal audit. Too many senior stakeholders still perceive internal audit’s main role to be one of enforcement or of operating controls. Management – not internal audit – must be accountable for implementing and operating controls, and for the internal control system.
In general, we recommend a move to a more future-focused, risk based approach to internal auditing that examines the key, strategic issues facing the Ministry. It will take time to achieve this, but we believe the results will deliver further value to the Minister, the Ministry and its key stakeholders, as well as improving the capability and effectiveness of its operations.
— What are the difference between the British and Ukrainian internal audit system in the defence sector?
— We believe that the Ukrainian Ministry of Defence’s Internal Audit Department is on a journey. The Department is nearly five years old and the current Director of the Department was only formally appointed to her current role in March 2015. There have been structural and workforce changes to the Department during this five-year period.
In the UK, the MOD internal audit function has existed for a much longer period. It has evolved during this period, as has internal audit in general across the UK central government sector. Nowadays we do not just focus on financial, fraud or compliance work. We consider key, strategic risks and how well these are being addressed by management. Our recommendations are aimed at improvement rather than criticism. We don’t just look at ‘back office’ activity – our work can look at operational matters and improve military capability and effectiveness.
Internal audit should be seen as a trusted adviser, a critical friend and a value adding activity. It undertakes both assurance and consulting work. It should be
is appreciated, and often requested, rather than feared. Fundamentally, internal audit can contribute directly to the delivery of effective military capability by identifying and mitigating poor or corrupt practice, improving the efficiency of business processes and ensuring that defence resources are used effectively.
— What are next steps of MoD Ukraine in terms of implementing recommendations of the British counterparts?
— This assessment provides a good evidence base to shape future UK assistance to the Ministry of Defence in supporting defence reform and good governance. We make recommendations in our report.
Some are quick wins and others will take more work to adopt and implement. Working with the UK Special Defence Advisor and UK based experts, the Director of Internal Audit Department is currently developing an action plan to implement these recommendations, with appropriate actions and target dates. UK will support the Ministry of Defence with implementation through further advice, mentoring, and knowledge sharing. Furthermore, UK will follow up progress at regular intervals, as well as undertaking a short, formal reassessment in November 2017.
Natalia Valevska, Censor.NET