PRESENTATION TO THE   PARTNERS OF IG MPWIndII Activity P243-02: Governance Reform   in Internal Audit Function (IG-MPW)
Why AusAID?
GoA is a leader and a strong proponent of  Good Governance    and  Accountabilityin the belief that countries that recei...
The Paris DeclarationIn March 2005, representatives of developed and developingcountries (including Australia) meeting at ...
Why AusAID Supports the IG
The IG understands that changes must be made to improve  the operations in order to meet GoI obligations as IG  and to ma...
Our Partners
Our Partners•   BPKP•   LKPP•   KPK•   MENPAN (Bureaucratic Reform)•   World Bank              In house partners• IG MPW C...
Background
Background• Early 2009, IG proposed a Reform Agenda (RA) for better  value-added services to MPW on budget impact,  infras...
Therefore, it was timely to consider other critical areas of    improvement, to ensure sustainability of progressIn order ...
Overview : Current Activity: IndII Activity P243-02:Governance Reform in Internal Audit Function (IG-MPW)            Movin...
An entirely new program, both in scope and approach• Although it builds on the prior Activities of IndII  support to the I...
Internal Audit Capability Model  (IA-CM) for the Public Sector      Overview Presentation          Libby MacRae         Bo...
AgendaThe IA-CM  – Its structure and underlying concepts  – Principles in its application  – Using the IA-CM              ...
What is the IA-CM?• A universal model with comparability – principles,  processes and practices• To be used globally to im...
Underlying PrinciplesIA Activity’s Obligations• Be an integral component of effective governance in the   public sector• A...
Underlying PrinciplesSelecting Optimum Capability• Three variables   – Environment   – Organization   – IA Activity• Diffe...
IA-CM Levels                                          IA learning from inside and outside the organization for   LEVEL 5  ...
Level 1- Initial• Ad hoc or unstructured• Isolated single audits, document reviews, transaction  verification• Outputs dep...
Level 2- Infrastructure• Repeatable processes or capability established• Reporting relationships, management, administrati...
Level 3 - Integrated• Defined IA policies, procedures, documented and  integrated into organization structure• IA manageme...
IA-CM 1-page Matrix                                                 © 2009, The IIA Research                              ...
Key Process Area (KPA)        Key Process Area             Purpose            Essential            Activities             ...
People Management                   Level 2 – Infrastructure          Skilled People Identified and RecruitedPurpose – To ...
People Management                      Level 2 – Infrastructure             Skilled People Identified and RecruitedOutputs...
Institutionalizing a Key Process Area                              Commitment                               To Perform    ...
Using the IA-CM as an Assessment Tool• Understand the purpose and structure of the IA-CM• Identify the KPAs that appear to...
Principles in its Application• Apply professional judgment• Environmental and organizational factors• A practice cannot be...
Important Considerations• All levels in the IG participate• Organizational management and stakeholder support• Processes a...
Procurement Standards in                  Indonesia           IndII Activity P243-02: Governance Reform              in In...
The Procurement Process                     Identify the Need      Review of                          Approval to Proceed ...
Key Areas of Procurement Activity• Good Sourcing Principles and Practices• Price and Cost Analysis• Inventory Management• ...
Approach• Analysis of current competencies, procedures, practices and policies• Work with MPW management and selected DG’s...
Key Messages• Early involvement (by both parties) in the  procurements to resolve potential risk areas in  time• Shared un...
Best Practice Procurement                      WILL              achieve compliance,            Compliance alone does not ...
Change Management Support     Program (CMSP)      Dr Steve Harris                            37
Role in Change Management• Private and Public Sectors  – Reform efforts gone under many banners     • TQM, PRR, Reengineer...
CMSP at core of reform• CMSP + CM Strategy (D5)  – Inform & guide key strategic/operational    decisions the MoW/IndII Tea...
Lessons Learned• The most general lesson is change is a series  of steps/stages over considerable time (5-10  years)  – Te...
Lessons Learned (con’t)• Transformation thus is a process not an event   – Series of building blocks   – 5-10 year time fr...
Lessons Learned (con’t)Sustainable and effective leadership is often the missing Ingredient in reform    implementationLea...
Key IG MPW - IndII Team Phased Steps                 (Source: JP Kotter)•   Sense of urgency/identify crises & opportuntie...
Key IG MPW - IndII Team Phased Steps              (Source: JP Kotter)• Planning for and creating short term wins  (plan an...
Case Study: MAIL/Afghanistan• Institutional mandate for reform mandatory (link to strategic level  leadership in national ...
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Presentation by bhaskar bhindie ind ii

  1. 1. PRESENTATION TO THE PARTNERS OF IG MPWIndII Activity P243-02: Governance Reform in Internal Audit Function (IG-MPW)
  2. 2. Why AusAID?
  3. 3. GoA is a leader and a strong proponent of Good Governance and Accountabilityin the belief that countries that receiveGoA aid and have the two attributes,improve the effectiveness of aid andreduce corruption. These goals are in linewith the Paris Declaration. 3
  4. 4. The Paris DeclarationIn March 2005, representatives of developed and developingcountries (including Australia) meeting at the High LevelForum on Aid Effectiveness in Paris “resolve[d] to take far-reaching and monitorable actions to reform the ways wedeliver and manage aid”. The result was the Paris Declarationon Aid EffectivenessSelected Summary of Indicators of Progress1. Partners have operational development strategies2. Partners have reliable public financial management and procurement systems3. Capacity will be strengthened by coordinated supportTHIS PROGRAM FALLS WITHIN THE GUIDELINES & PRIORITIES OF GOA 4
  5. 5. Why AusAID Supports the IG
  6. 6. The IG understands that changes must be made to improve the operations in order to meet GoI obligations as IG and to make the unit into Professional Auditors was the primary mover in proposing the Reform Agenda – he is the Change Agent is Chairman of the 565+ IGs in GoI & wants to continue a leadership role to set an example Believes this experience can be a template to replicate at other IG Operations understands the challenges going forward and has shown ownership wants to work with AusAID 6
  7. 7. Our Partners
  8. 8. Our Partners• BPKP• LKPP• KPK• MENPAN (Bureaucratic Reform)• World Bank In house partners• IG MPW Change Management Unit• MPW Management 8
  9. 9. Background
  10. 10. Background• Early 2009, IG proposed a Reform Agenda (RA) for better value-added services to MPW on budget impact, infrastructure development and activity safeguards.• Indicative trigger for World Bank’s IDPL 4: Adoption of an Action Plan to strengthen staff capacity and introduce modern RBIA methodology & practices to provide assurance on internal control systems and compliance.• Initial discussions identified the need for continuing support over stages, grouped by achievements / identified deliverables.• IndII support commenced in June 2009;• Earlier IndII support helped IG to improve and strengthen its capacity / technical ability to do internal audit work at MPW.• However, although substantial groundwork for fundamental auditing using RBIA techniques has been established, there are fundamental “roadblocks” within the IG structure and operations that must be resolved if the gains made to date are to be maintained and further improved. 10
  11. 11. Therefore, it was timely to consider other critical areas of improvement, to ensure sustainability of progressIn order to have sustainability:Processes must have the ability to be repeatedIn order to repeat processesthere must be a supporting infrastructure with systems that are imbedded and institutionalized. 11
  12. 12. Overview : Current Activity: IndII Activity P243-02:Governance Reform in Internal Audit Function (IG-MPW) Moving from IACM Level 2 to Level 3 Change Management, Training, Education & Quality Assurance Pillar 1 Pillar 2 Pillar 3 Institutional Better Enhanced Strengthening Procurement Anticorruption Practices Environment Internal Control System PP 60 Partners: Partners: Partners: MPW management, all MPW Management, BPKP MPW Management, all DGs, BPKP, LKPP & KPK DGs, KPK IG MPW as The Change Agent (with AusAID / IndII support)
  13. 13. An entirely new program, both in scope and approach• Although it builds on the prior Activities of IndII support to the IG, we concluded there was a serious danger that gains made may not be sustained longer- term and be capable of being used as building blocks for further improvements unless fundamental roadblocks such as updated relevant management structures and support mechanisms were addressed; therefore the importance of IACM (Pillar 1).• In addition, GoI is now more focused on eliminating (or at least reducing) corruption; thus Pillar 2, a concentration on improving procurement practices, doing better and more procurement auditing and• Pillar 3 - creating / monitoring a corruption-free environment. 13
  14. 14. Internal Audit Capability Model (IA-CM) for the Public Sector Overview Presentation Libby MacRae Bob McDonald 14
  15. 15. AgendaThe IA-CM – Its structure and underlying concepts – Principles in its application – Using the IA-CM 15 15
  16. 16. What is the IA-CM?• A universal model with comparability – principles, processes and practices• To be used globally to improve internal auditing• Framework for assessing capabilities against standards and practices• Communication vehicle for defining and advocating the importance of internal auditing• Roadmap and toolkit for orderly improvement 16
  17. 17. Underlying PrinciplesIA Activity’s Obligations• Be an integral component of effective governance in the public sector• Assist organizations achieve their objectives and account for their resultsOrganization’s Obligations• Determine optimum level of IA capability to support required governance structures• Achieve and maintain the desired capability 17 17
  18. 18. Underlying PrinciplesSelecting Optimum Capability• Three variables – Environment – Organization – IA Activity• Different capability required• Auditing must be cost-effective• No “one size fits all” 18 18
  19. 19. IA-CM Levels IA learning from inside and outside the organization for LEVEL 5 continuous improvement Optimizing IA integrates information from across the organization to improve LEVEL 4 governance and risk management Managed IA management and professional practices LEVEL 3 uniformly applied Integrated Sustainable and repeatable IA LEVEL 2 practices and procedures Infrastructure No sustainable, repeatable capabilities – LEVEL 1 dependent upon Initialindividual efforts 19 19
  20. 20. Level 1- Initial• Ad hoc or unstructured• Isolated single audits, document reviews, transaction verification• Outputs dependent on incumbent skills• No professional practices or standards applied• Funding approved by management as needed• Absence of Infrastructure• Auditors likely belong to a larger organizational unit• Institutional capability not developed 20
  21. 21. Level 2- Infrastructure• Repeatable processes or capability established• Reporting relationships, management, administrative infrastructure, professional practices established• Audit planning based principally on management priorities• Continued reliance essentially on skills and competencies of incumbents• Partial conformance with IIA Standards 21
  22. 22. Level 3 - Integrated• Defined IA policies, procedures, documented and integrated into organization structure• IA management and professional practices well established, uniformly applied• IA beginning to align with business and its risks• IA providing advice on performance and management of risks• Focus on team building and IA capacity and independence and objectivity• Generally conforms to IIA Standards 22
  23. 23. IA-CM 1-page Matrix © 2009, The IIA Research Foundation – All Rights Reserved Services and Role People Management Professional Performance Organizational Governance of IA Practices Management and Relationships Structures Accountability and CultureLevel 5 – Leadership ContinuousOptimizing Involvement with Improvement in IA Recognized as Public Reporting of Effective and Independence, Professional Bodies Professional Key Agent of IA Effectiveness Ongoing Power, and Practices Change Workforce Projection Relationships Authority of the IA Strategic IA Activity PlanningLevel 4 – IA Contributes to IndependentManaged Management Oversight of the Overall Assurance Audit Strategy Integration of CAE Advises and Development IA Activity on Governance, Leverages Qualitative and Influences Top- Risk Management, IA Activity Supports Organization’s Quantitative level CAE Reports to and Control Professional Bodies Management of Performance Management Top-level Risk Measures Authority Workforce PlanningLevel 3 – Team Building and Quality Performance Coordination with ManagementIntegrated Competency Management Measures Other Review Oversight of the Advisory Services Framework Groups IA Activity Professionally Cost Information Performance/ Qualified Staff Risk-based Audit Integral Funding Value-for-Money IA Management Plans Component of Mechanisms Audits Workforce Reports Management Coordination TeamLevel 2 – Individual Professional Full Access to theInfrastructure Professional Practices and Managing within Organization’s Compliance IA Operating Development Processes the IA Activity Information, Auditing Budget Framework Assets, and Skilled People IA Business Plan People Identified and Audit Plan Based Recruited on Management/ Reporting Stakeholder Relationships Priorities EstablishedLevel 1 – Ad hoc and unstructured; isolated single audits or reviews of documents and transactions for accuracy and compliance; outputsInitial dependent upon the skills of specific individuals holding the position; no specific professional practices established other than those provided by professional associations; funding approved by management, as needed; absence of infrastructure; auditors likely part of a larger organizational unit; no established capabilities; therefore, no specific key process areas
  24. 24. Key Process Area (KPA) Key Process Area Purpose Essential Activities Outputs Outcomes Institutionalizing Practice Examples 24 24
  25. 25. People Management Level 2 – Infrastructure Skilled People Identified and RecruitedPurpose – To identify and attract people with the necessary competencies and relevant skills to carry out the work of the IA activity. Appropriately qualified and recruited internal auditors are more likely to provide credibility to the internal audit results.Essential Activities• Identify and define the specific audit tasks to be conducted• Identify the knowledge, skills (technical and behavioral), and other competencies required to conduct audit tasks• Develop job descriptions for positions• Determine proper pay classification for positions• Conduct valid, credible recruitment process to select appropriate candidates 25 25
  26. 26. People Management Level 2 – Infrastructure Skilled People Identified and RecruitedOutputs• Internal audit positions are filled with appropriately qualified personsOutcomes• Audit work is conducted with due professional care• There are credible audit observations, conclusions, and recommendationsInstitutionalizing Practice Examples• Visible commitment and support through senior management action to ensure that a competent and qualified CAE is in place, and the necessary resources are provided to appropriately staff the IA activity• Staffing and recruitment policy• Job descriptions• Classification system, including levels specific to internal auditing 26 26
  27. 27. Institutionalizing a Key Process Area Commitment To Perform Activities Activities Ability to Verified Perform Key Process Activities Area Activities Activities Measured Performed 27
  28. 28. Using the IA-CM as an Assessment Tool• Understand the purpose and structure of the IA-CM• Identify the KPAs that appear to be institutionalized by the IA activity• Obtain and review documentation re: IA activity, organization, and environment• Interview managers/stakeholders• Confirm the actual KPAs institutionalized• Determine the capability level• Communicate and confirm the opportunities for improvement• Develop and implement the improvement plan 28 28
  29. 29. Principles in its Application• Apply professional judgment• Environmental and organizational factors• A practice cannot be improved if it cannot be repeated• Capability gets built in steps/stages• KPAs at one level set the foundation for KPAs at the next level• A KPA is achieved when it is institutionalized into the culture of the IA activity• All KPAs, up to and including the KPAs at a given level, must be institutionalized to achieve that level• Not all all elements need be at the same level 29 29
  30. 30. Important Considerations• All levels in the IG participate• Organizational management and stakeholder support• Processes are institutionalized and sustainable 30
  31. 31. Procurement Standards in Indonesia IndII Activity P243-02: Governance Reform in Internal Audit Function (IG-MPW) Presented by Rob Thompson IndII Activity P243-02: Governance Reform9/6/2012 in Internal Audit Function (IG-MPW)
  32. 32. The Procurement Process Identify the Need Review of Approval to Proceed Performance Develop Contract Strategy Payment Manage Set Evaluation Criteria Relationship Develop the Specification MonitorPerformance Define the Contract Award Contractual Terms Clarify/ PTN VFM Research the Analyse Quotes/ Market Tenders Invite Quotes/ Identify Pre-Qualification Tenders and Select Bidders
  33. 33. Key Areas of Procurement Activity• Good Sourcing Principles and Practices• Price and Cost Analysis• Inventory Management• Legal ProtectionProcurement Competencies being prepared
  34. 34. Approach• Analysis of current competencies, procedures, practices and policies• Work with MPW management and selected DG’s to enhance procurement competency• Develop and support the ULP in developing good procurement practice• Applying Risk Assessment & Management techniques to all procurement• Introduction of best practice procurement training• Presenting and mentoring the introduction of new procurement tools and techniques• Providing practical guidance to MPW & DG’s to ensure a consistent application of best practice techniques
  35. 35. Key Messages• Early involvement (by both parties) in the procurements to resolve potential risk areas in time• Shared understanding of what is procurement• Integrate lessons learnt from past experience in future training and procurement practices• Best practice contract management• Cost not price• Performance not conformance• Consistency in actions.
  36. 36. Best Practice Procurement WILL achieve compliance, Compliance alone does not ensure a best value for money procurement. IndII Activity P243-02: Governance Reform9/6/2012 in Internal Audit Function (IG-MPW)
  37. 37. Change Management Support Program (CMSP) Dr Steve Harris 37
  38. 38. Role in Change Management• Private and Public Sectors – Reform efforts gone under many banners • TQM, PRR, Reengineering, restructuring, cultural change, turnaround• Core focus: “making fundamental changes in doing business” – Results variable • Some reforms successful & few utter failures & most fall somewhere in between • Lessons learned are significant 38
  39. 39. CMSP at core of reform• CMSP + CM Strategy (D5) – Inform & guide key strategic/operational decisions the MoW/IndII Team make – Address and overcome Roadblocks – Linked closely to long-term approach outlined in the roadmap’ 39
  40. 40. Lessons Learned• The most general lesson is change is a series of steps/stages over considerable time (5-10 years) – Tenacity to skip stages and creates an illusion of speed and never produces satisfying results• Critical mistakes during stages have a devastating impact on the reform program – Declaring early victory • Negative impact, momentum lost • Erodes/negates progress made 40
  41. 41. Lessons Learned (con’t)• Transformation thus is a process not an event – Series of building blocks – 5-10 year time frame – Resist skipping stages• Standard approach to CM – Targeted areas are: • Orgs Strategy • People, pay, processes • Move staff • Realign functions • Rewards and incentives • Remove inefficiencies 41
  42. 42. Lessons Learned (con’t)Sustainable and effective leadership is often the missing Ingredient in reform implementationLeadership• MPW leaders as Guiding Coalition’• IndII Team as Change Agents• Selected employees as CAs• Establish CM mechanismEffective persuasion campaign• Early activation/weeks or months• IndII Team instrumental here/design and implement• goals: ensure employees listen to tough messages• Understand institutional and national psychologyCampaign goals: ensure employees listen to tough messages; question old assumptions; embrace new waysIndII Team mentor and nurture/training (technical&CM) 42
  43. 43. Key IG MPW - IndII Team Phased Steps (Source: JP Kotter)• Sense of urgency/identify crises & opportunties• Forming a powerful coalition to lead change• Create Vision to direct reform• Communicate Vision/use every vehicle available• Empowering others to act on vision (get rid of obstacles (encourage risk taking/change systems or structures that undermine the vision 43
  44. 44. Key IG MPW - IndII Team Phased Steps (Source: JP Kotter)• Planning for and creating short term wins (plan and create performance improvements)• Consolidate improvements and produce even more change (hire promote and develop employees who can implement vision)• Institutionalise (highlight link between new behaviours and Departmental success/ensure succession• M&E/Impact Focus 44
  45. 45. Case Study: MAIL/Afghanistan• Institutional mandate for reform mandatory (link to strategic level leadership in national public sector reform program)• Capacity development – Based on long term commitment – competency based incentives – mentoring by national specialists• Instl reforms not too ambitious – No whole instt approach – select small operational priorities – Use them as cascading models to demonstrate CM principles• Monitor and evaluate management ‘energy’ in the Department• Vertical/Horizontal communications is critical• Establish mechanism for wide ranging stakeholder collaboration and coordination• Guaranteed funding critical 45
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