The challenges of establishing a centralized internal audit service in the Belgian federal administrations

Please note this is an opinion piece. There are some strongly held convictions which I voice here.

My involvement in trying to establish internal audit in the Belgian federal government

Recently, rumors have been building up again about a centralized internal audit service for the Belgian federal government. I think it would be a very bad mistake to make. Truth be told, I’ve been involved in the fight to establish audit services in the Belgian federal government since the early 2000’s.

My current role & responsibility is a direct result of my deep appreciation for working in activities related to government. At BTC, I’m both living a dream as head of internal audit and feeling I can make a contribution. BTC, after all, is the agency, wholly owned by government, charged with development aid.

Note that the early 2000’s were the time of the Copernicus reforms, where giving an increased autonomy to federal government services was high on the agenda. The envisioned reduction of direct political influence on the administrations was an important stated goal. However, increases in autonomy had to be counterbalanced and internal audit was an important aspect of that counter-balance.

The current state of internal audit in the Belgian federal government

Please note that to date, no formal internal audit activities have been started up in the Belgian federal government. To be clear, this does not mean there is no internal audit activity. On the contrary, several federal government services, understanding the need to have an independent or semi-independent entity responsible for oversight on internal controls, governance and (in the relevant cases) risk management, went ahead and started up their own internal audit departments. Some of these have more than 10 years behind them. Yet, sadly, they were dissavowed by the appointed audit committee of the federal government. Put in place by the last caretaker government Belgium had, this audit committee is not necessarily that experienced in matters of internal audit.

Other control and inspection structures

This of course does not mean there are no independent entities providing supervision of federal government activities. On the contrary, we have the court of auditors and we have the finance inspection. The first reports to the parliament, the second to the minister of the budget. Both structures are most effective, in my opinion, when they have embedded their collaborators deep in the federal government services they are charged with checking.

Internal audit recognition issues at other government levels

There is an active example of a centralized internal audit service in Belgium: the internal audit to the Flemish Administration, or IAVA. Despite being managed by a good manager, and with competent auditors on board, this audit team has had an uphill struggle in becoming accepted as “one of us” among Flemish public servants. In more than once instance, their authority was challenged, and they have invested a significant amount of time and resources establishing themselves as trusted business advisors to the public servants they are charged with auditing. For example, IAVA was instrumental in developing the guide to internal control development. They manage a leading practices database. All great initiatives, but not traditionally what you would expect from an internal auditor.

What’s my beef?

It’s this: developing a centralized internal audit structure within the Belgian federal government will, for at least the next ten years, amount to little more than window dressing. The new internal auditors will need to earn the trust of public servants operating outside of the “circle of trust” of the organization.
I know the president of the federal audit committee will be up in arms and cry foul, stating independence issues. The point is that that is not, in itself, an issue of independence. Independence is not an objective by itself, but a means to an objective audit opinion or an objective audit report. There are a lot of ways to ensure this objectivity, including building safeguards to independence in the way audit is embedded in the federal government service structures.

If anyone needs an example on how this can succesfully be done in an organization linked to federal government, come take a look at how BTC has done this in the past years. I believe we are very independent, yet we work deeply embedded in the organizational structures we audit.

The current structure, as proposed by the federal audit committee would in effect be a “finance inspection plus”, in essence adding to the role of the finance inspection. In that case, let’s call a duck a duck, and integrate this function with the finance inspection. This would mean a redefinition of the role of finance inspector, but that is feasible. The way in which the inspection currently works as it relates to their oversight role is also embedded in the organizations they audit.
However, if the intent to develop truly functional audit departments is a true intent, and not window dressing, I would suggest to stay away from the model currently being proposed. It will not work. I know it, the people who propose it, know it (deep in their harts).
Last, but not least, the argument of reducing the cost of internal audit from a budget perspective is a relevant one, but a centralized structure will end up costing you more, not less … if you calculate cost as a function of audit efficiency. Because your internal audit will not be effective, nor will it be efficient, for years to come. It may add value, but it will not be auditing.