A couple of days ago, the president of the Belgian federal audit committee announced that he was resigning because his committee did not receive the required support from the government to allow it to achieve its objectives. He was quickly supported by at least one high profile president of a federal government service, a ministry, in his decision. I believe their intentions were right, but that their opinion and position is wrong. Here’s why.
Lack of clarity regarding the role of internal audit in the Belgian federal government
Few people realize that the issues regarding internal audit in the Belgian federal government are not new. Internal audits have been in place since many years in a lot of the former ministries. The 2000 – 2004 Copernicus reform within the Belgian federal government aimed at establishing a structural framework for these diverse initiatives in order to provide a regular, uniform yet still adequately specific review of a decentralized and more autonomous functioning of the federal government services, in an output oriented budget reality. We never achieved the full implementation that new budgetary process, although parts exist. Neither did the increased autonomy of the federal government services really manifest itself. The new internal audit function therefore never really needed to be present, because of the existing supervisory structures, such as the Inspection of Finance, reporting to the responsible minister and the Court of Auditors, reporting to the parliament.
This lack of clarity on the roles and responsibilities of internal audit resulted to date in two significant rewrites of the governing royal decrees. The first rewrite of the original 2001 texts occurred in 2007 and aimed at resolving internal inconsistencies as well as more clearly defining roles and responsibilities. The new rewrite, which is still ongoing, aims at further clarifying the roles and responsibilities of internal audit as adapted to the current situation of the Belgian federal government administrations. Sadly, as was the case during the first rewrite, few if any internal auditors with adequate practical experience are involved in making this a set of royal decrees that will function.
Under specific circumstances, there is a relevant and continuing role for an internal audit department in a Belgian federal government service. I’m not entirely convinced these circumstances are present yet. That does not mean internal auditors currently cannot contribute significantly to the further development and maturity of their respective federal government services.
Lack of flexibility by the audit committee and its supporting administration
However, that was never the idea of the audit committee presidency to begin with. The idea was to develop a large, independent structure within the Belgian federal government charged with internal audit. I believe this to be a first mistake. Not conceptually necessarily, although we can have that discussion, but from a people perspective as well as from the perspective of getting the required support for a challenging mission. All the work that had been done to date by the internal auditors working in the different federal government services was considered almost irrelevant in that pursuit of the grand dream of an organization almost competitive with the two other supervisory structures mentioned before.
This idea – which was the same idea that led to a large scale internal audit structure within the Flemish administration which has been faced with some of the same challenges, overcome mainly because of a highly pragmatic director-general – blocked all alternative ideas, to a point where the existing internal auditors could not but rally their presidents, who were not necessarily interested in yet another supervisory structure.
Few people realize that oversight can become quite intense in government administrations. Oversight may on occasion even be responsible for some of the lack of efficiency present in several administrations. Hence, oversight needs to be coordinated. Building yet another structure with no direct added value to the organization itself and without adequate motivation should be questioned, as it was by several presidents, much to the dismay of the audit committee presidency.
The added value of internal audit in the current Belgian federal government structures
The question became: can the current crop of internal auditors add value to their federal government services, and how? Contrary to some other people, and based on working with some of these people for a number of years, I believe they most certainly can, and do. Even when reporting to a president of a federal government service and not directly to an audit committee, the presence of internal auditors has a – albeit it perhaps limited – risk reducing effect on the administrations being audited.
This does not mean there is no room for improvement. It does mean that the practical experience and the expertise of the internal auditors that have formed part of these structures for such a long time provides a real added value. Any internal audit structure not adequately embedded in an organization will not be able to identify key issues if they are not identified by the people being audited. This reduces the effectiveness of the internal audit department. Just having the internal auditors internal in these administrations means that they know enough of the activities to allow them to identify key issues themselves, with a lot less assistance of the people under audit.
The limitations of theoretical knowledge
Do I contest that there is a case to be made for certain centralisations? Not at all. Common functionalities such as budget or purchasing can be audited across federal government services. However, governance, risk management and internal control systems at the operational level require internal auditors with an adequate background in the operational reality of a federal government service. They need to be present in the field, in the organization. You simply cannot be an expert in everything. The audit committee should provide an umbrella of independence when needed.
Because a lot of people seem to forget that that independence is only a means to an end: it is only there to support a high degree of objectivity and neutrality from the auditor.
There is a middle ground
What the former presidency of the Belgian federal audit committee could have capitalized on is that there is a middle ground. If his support team had focused on bringing audit capacity and capabilities to the common functionalities while supporting the existing internal auditors with tools and technologies, making their lives easier and really supporting them instead of making their lives more difficult with irrelevant reporting requirements, inroads would have been made. Time now wasted in discussions on who is responsible for what would have been spent auditing. Which is what internal auditors are really all about.
Make no mistake about it, I’m not saying this would have been an easy job. But I believe it is a job that requires not only a theoretical background in internal auditing but also a number of years of recent, practical experience of performing internal audits in a federal context. It also requires an willingness to build bridges with the existing audit capabilities rather than dismissing them.
An operational internal auditor with adequate federal experience in the support team of the audit committee or even as a president could have made this happen. It may not have looked pretty, but then again, when an operational internal auditor passes it seldom does. It may have been put together with chewing gum and duct tape, but it would have functioned. It would have been the basis for a future audit committee of the Belgian federal administration that could have functioned well, most likely with the people currently appointed in it.
I’m not doubting the willingness and the competency of the people involved, neither of those that have left and of those that are still present. What I doubt is the relevance and the practical experience present within the supporting administration of the audit committee of the Belgian federal administrations to think outside the box and to come up with solutions sets which are perhaps less common but which work. Again, in order to be able to do this that team needs to move beyond purely theoretical knowledge and requires practical experience. And no, having a CIA does not make a difference. Experience does.
I know there are still a number of experienced internal auditors in place. Perhaps they should consider themselves a viable candidate for either the support team or even the function of next president of the Belgian federal audit committee.
Exploring The Black Box 