Internal local authority auditors should be independent from the finance function and report to an audit committee, according to the Institute of Internal Auditors.
The IIA-UK, which has lobbied private and public-sector bodies to adopt the approach, believes the need for new internal audit procedures in local government has been underlined by revelations of an increase in internally generated fraud in councils nationwide – a point echoed by the publication of the local government Bill.
Bill Bolton, IIA-UK technical director and adviser, said: ‘The purpose of our paper is fourfold. It aims to bring local government internal audit into line with best practice in the private sector.
‘It provides guidance on how councils can improve the effectiveness of their internal audit service. It gets members involved and, finally, it creates awareness of the importance of decisions required from councillors as a result of revised regulation.’
The guidance highlights three prerequisites for effective internal auditing: the right status and role to ensure organisational independence and objectivity, appropriately qualified staff, and use of up-to-date auditing techniques.
Among the issues discussed are the introduction of professional standards and guidelines; the influence of the CIPFA audit panel in local government; and the need for enhanced status and contribution following public loss of confidence in the ability of the members to control council activities.
According to the guidelines, one of the main advantages of an audit committee is that it provides a forum for involving elected members in the auditing and control process. The audit committee would report to the council on the adequacy of the system of internal controls, including fraud prevention and a review of internal audit work, the guide adds.
Chris Hurford, chairman of the CIPFA Audit Panel, said: ‘The guidance is a valuable contribution but I feel it is a starting point. Local government auditing has a powerful oversight – the Audit Commission – which might be something the IIA has not teased out in its work.’
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