10 JULY 2002
At the Biennial Conference on the Public Internal Audit and Investigative Function, Prime Minister Eddie Fenech Adami highlights the progress in re-engineering the internal audit and financial investigations function in Malta. In so doing, Dr Fenech Adami explains, the over-riding objective is to provide an ever more effective means for ensuring that taxpayers money is put to its intended and proper use
My Governments efforts to upgrade public financial control structures is one other link in the long chain of reform measures taken since the late nineteen eighties.
This process was in fact launched in 1989 with the publication of the far-reaching Public Service Reform Commission Report. The adoption and subsequent implementation of many of the Commissions recommendations has since resulted in significant improvements in the Public Service. These have in turn increased Maltas capacity to meet the challenging demands of an ever-changing global environment.
The reform process is however an ongoing one and, in spite of the successes we have achieved, there always remain areas for improvement. As soon as my Government again took office in 1998, a series of new public service reform initiatives were launched. A key aspect of this programme concerned the changes required in the financial control aspects of government. A Financial Management Reform Task Force set up late in 1998 identified three main areas which needed to be addressed.
These were: the formulation of a new Public Financial Management Act, the introduction of a new accounting system, and, the re-engineering of the public internal audit function, the effectiveness of which had been steadily diluted in recent years.
It was against this background that my Government decided early in 1999 to initiate a complete overhaul of the public internal audit function that is the subject of this mornings proceedings.
When internal audit was first introduced in Government in 1992, it was decided to set this up as a decentralised function, with every Ministry having its own internal audit resource, and with the Ministry of Finance assuming an overall co-ordinating role.
Although the preparatory groundwork for the launching of the function was significant and valid, the inherent weaknesses of the decentralised system adopted at the time, and the lack of sufficient human resources with the necessary competencies, meant that internal audit never achieved the importance it deserved within the administrative structures of the individual Ministries and their component departments.
Drawing on the lessons learnt from the 1992 exercise, the 1998 task force subsequently drew up a strategic framework for the re-engineering of the public internal audit function.
The underlying objective of the new strategy was to ensure the development of internal audit into a strong tool to help Permanent Secretaries and other senior public managers improve the efficiency and effectiveness of their administrative and other systems. That, in turn, implied that one would have to decisively counter the ingrained perception of the role of internal auditors as being simply to search for relatively minor weaknesses, so as to attribute blame to the person or organisation being audited and to subsequently publicise the discovered weaknesses.
In order to meet this objective, my Government accordingly accepted the key recommendations of the Task Force on the:
- centralisation of the service-wide internal audit effort;
- the establishment of a new professional class of internal auditors to be managed by a new Directorate; and,
- the creation of a regulatory board, which would deal with the Internal Audit aspect of the function within Government.
Moreover, it was agreed that it was essential for internal auditors to be functionally independent of the entities they would be auditing. For this reason, a decision was taken by Government to transfer responsibility for public internal audit from a line ministry the Ministry of Finance to the Cabinet Office.
The innovations introduced since the change of direction on internal audit was approved three years ago have already been significant. They will be consolidated in the coming months and years.
Soon after the setting up in 1999 of the new Directorate and its overseeing Board, their designations were changed to reflect responsibility for financial investigations. Hence their present titles: Internal Audit and Investigations Board and Internal Audit and Investigations Directorate. This change was prompted by the Directorate being given the added role of interlocutor of the EU Commissions anti-fraud service, a role negotiated and agreed to during the EU membership negotiations on Chapter 28 of the Acquis Communautaire - Financial Control.
At the same time, Government also accepted that it would be beneficial to have the same Directorate cover the investigative requirements for both public funds, as well as for those funds and resources emanating from Maltas international obligations, particularly those related to the EU.
I must nevertheless here make it clear that the performance of internal audits and the conduct of financial investigations are two separate and distinct roles, so much so that the Directorates structure and resources are clearly divided so as to provide for the independent performance of each of these functions.
Today, the Internal Audit and Investigations Board is the functionally independent body set up to regulate public internal audit and financial investigations in Malta. The Board, which is chaired by the Secretary to the Cabinet, is composed of very senior public managers and, so as to ensure even wider objectivity, includes an experienced member of the local accountancy profession.
I must here clarify the definition of the term "financial investigations" as it relates to the Directorates responsibilities. The term in no way provides the remit for the Directorate to assume police powers. The Directors role is to ensure that, if criminal court proceedings are to be taken, Government has in its possession tangible evidence collated during the course of a financial investigation, as well as reports and proper certification from experienced professionals in the field of accounting, auditing and public finance. I must also add that this responsibility will not replace, but will rather complement, related functions already established in individual Government entities. The intended role is to co-ordinate, supplement and support such functions where necessary.
As part of this function, the Directorate has already set up a Co-ordinating Committee that serves as a forum where common issues related to irregularities and fraud are discussed and solved through the appropriate exchange of information. The Committee is made up of representatives of those Government departments and public entities that have an interest in the protection of public funds from any form of mismanagement and suspected cases of fraud. For this reason, its members include officials from the Attorney Generals Office, the Financial Intelligence and Analysis Unit and the Police Force. This framework facilitates the adoption of common policies, the sharing of data and, of course where necessary, the carrying out of joint investigative actions.
I must also mention the role that the Directorate has played, and continues to play, in international fora, in particular in connection with its EU-related role. The Directorate has made significant contributions to developments in the EU in the area of public internal audit, where some of its proposals have even been adopted as a model for other Candidate Countries to enable them to formulate their own public internal financial control frameworks. This confirmed the validity of Maltas reform process in this area. Similarly, the fact that Chapter 28 of the acquis on Financial Control was opened for negotiations, and practically closed in the same session, reflected the fact that the level of preparation was such that only a relatively few matters required clarification before the chapter was closed.
I should at this stage refer to what should still be considered to be the core business of the Directorate - the implementation of the individual audit plans agreed with the Permanent Secretaries. During two thousand and one, the first year of operation of the Directorate, a total of thirty audit and investigation assignments was completed. Seven of these were ad hoc assignments that had not even been included in the Directorates current two-year work plan approved by the Board in November 2000. During the first five months of this year, a further thirty-two assignments, including eight special audits, were completed.
I would finally like to say a few words on the method of regulation of public internal audit and investigations. Since the introduction of internal audit in Government in 1992, the function has always been regulated administratively. Past experience had shown that this method proved to be somewhat weak in cases where auditees resisted providing information, and where the assignments had often consequently to be abandoned prematurely. This is especially so in assignments within autonomous entities which nevertheless continued to receive public funds or support.
Also due to this situation, during the re-engineering process my Government was advised that, apart from the necessity to legislate in connection with the Directorates role as the anti-fraud interlocutor in Malta for the EU, it would also be desireable to regulate internal audit and financial investigations through specific legislation.
Government has accordingly accepted that the reform process should be completed by incorporating the public internal audit and investigations function into primary legislation. A draft law has already been considered and approved by Cabinet and will be included on the agenda of Parliament in the coming months. The law will provide the necessary powers and safeguards to meet the wide-ranging responsibilities of the Directorate. It will also recognise that the internal audit and financial investigations function has the potential to develop into a strong and effective tool for better governance.
My address today was mostly meant to highlight the progress achieved so far in re-engineering the internal audit and financial investigations function in Malta. In so doing, we are conscious that the over-riding objective is to provide an ever more effective means for ensuring that taxpayers money is put to its intended and proper use. This is, I feel, a very creditable goal and one which my Government is intent on pursuing further.