SELF-ASSESSMENT OF INTERNAL CONTROLS AS AN ELEMENT OF THE STATEMENT ON THE ASSESSMENT OF INTERNAL AUDIT OF PUBLIC FINANCES

In recent years, the public in Slovenia has become increasingly attentive to the operations of the public sector, as residents, through the payment of taxes and contributions, represent the main source of funds for financing public expenditure. To satisfy all these public demands, the state requires reliable information on operations as well as on the assessment of control systems. The statement is submitted, according to the published methodology, together with the annual report to AJPES (Agency of the Republic of Slovenia for Public Legal Records and Related Services) by the end of February for the previous year. Following the analyses of statements and the analysis of the survey, findings were reached that budget users experience weak risk management and a less developed control system. However, an improvement is noted in the year 2007 compared to the year 2006.

Problem

In recent years, the public in Slovenia has become increasingly attentive to the operations of the public sector, as residents, through the payment of taxes and contributions, represent the main source of funds for financing public expenditure. To satisfy all these public demands, the state requires reliable information on operations as well as on the assessment of control systems. With the very entry into the European Union, the time has also come to regulate the supervision of the use of public finance funds, which is why in the year 2004 the Office of the Republic of Slovenia for Internal Budget Audit issued Guidelines for Internal Controls for the period from the year 2005 to the year 2008, thus approaching the requirements of the European Commission.

What is important for users of public finances is that heads become aware of and assume responsibility for establishing an appropriate system of financial management and internal audit. Internal audit must ensure that the system of financial management and controls operates in accordance with the principles of legality, transparency, efficiency, effectiveness and economy. In accordance with the Public Finance Act (Official Gazette of the Republic of Slovenia No.

79/1999) and the Instructions on the Preparation of the Final Account of the State and Municipal Budget and the Methodology for the Preparation of the Report on Achieved Objectives and Results of Direct and Indirect Budget Users (Official Gazette of the Republic of Slovenia No. 12/2001 and 10/2006), the Annual Report on Achieved Objectives and Results of a Budget User must also contain an assessment of the functioning of the internal financial audit system of public finances.

Solution and Method

The statement is submitted, according to the published methodology, together with the annual report to AJPES (Agency of the Republic of Slovenia for Public Legal Records and Related Services) by the end of February for the previous year. The Statement on the Assessment of Internal Audit of Public Finances is a document in which the head or management body of a budget user presents or assesses the internal audit system. The assessment tells us to what extent the system ensures the achievement of objectives.

In the past two years, the predominant use of self-assessment questionnaires has been established, which assist us in the preparation of the Statement on the Assessment of Internal Audit of Public Finances. Self-assessment of internal controls is a process in which the effectiveness of internal controls is examined and assessed. In this process, it is important that it is carried out continuously and that through the process we obtain reasonable assurance that business objectives will be achieved.

The self-assessment questionnaire is divided into five interdependent internal control systems (internal control environment, risk management, control activities, information and communication, and monitoring).

Results

Following the analyses of statements and the analysis of the survey, findings were reached that budget users experience weak risk management and a less developed monitoring system. However, an improvement is noted in the year 2007 compared to the year 2006. Following the analysis of survey data, the result was reached that 74.58 per cent of respondents in the previous year opted for self-assessment questionnaires as an element of the Statement on the Assessment of Internal Audit of Public Finances, that only 47.83 per cent of respondents understand the meaning of self-assessment as a whole, and what is most concerning, as many as 25.42 per cent of accountants are responsible for the preparation of the Statement on the Assessment of Internal Controls of Public Finances, due to which progress in overall operations cannot be demonstrated.

The analysis of the self-assessment approach as an element of the statement on the assessment of internal audit presented in the diploma thesis confirmed the hypothesis that the approach to establishing effective internal controls is only at the beginning, as the audit of public finances still represents a new process in the operations and functioning of public institutions as indirect budget users, although appropriate professional foundations for the implementation of internal audit have been prepared. Likewise, regulations, instructions and explanations for the preparation of the Statement on the Assessment of Internal Audit of Public Finances and a tool for completing it – the self-assessment questionnaire – are available.

We establish that heads of public institutions do not understand the meaning of the responsibility for establishing and improving the system of financial management, internal controls and risk management in order to achieve business objectives. They simply transfer the responsibility to accountants. The level of education of accountants is still at a low level, although according to the Strategy for the Development of Internal Audit of Public Finances for the period 2003–2008, training of accountants should have begun in the year 2003, thus acquiring by the year 2008 a sufficient number of accountants specialised in the public sector.

In the Strategy for the Development of Internal Audit of Public Finances in June 2005, the Government adopted the objective of strengthening the internal audit function at budget users, for which it is necessary to increase the number of internal auditors in the public sector and ensure their appropriate training. They envisaged that by the year 2008, 400 state internal auditors would be operating. On the website of the Office of the Republic of Slovenia for Budget Supervision, there is a list from which it is evident that in November 2008 there were only 328 state internal auditors.

We see the problem in the initial educational structure of accountants in the public sector. With the diploma thesis, the hypothesis was confirmed that in the implementation of the internal audit process of public finances, self-assessment based on self-assessment questionnaires is predominantly used. The purpose of the questionnaires, however, is that through them we arrive at results on the effectiveness, economy and efficiency in the operations of institutions.

According to the findings from the analysis of surveys, the effectiveness of self-assessment is questionable. Respondents did not provide a convincing opinion on their knowledge of the concept of internal audit of public finances. According to the respondents, self-assessment brings benefits only in part of the operations.

It will be necessary to approach more thoroughly the identification of weak points in the system, proposals for improvements and the improvement of knowledge.