Are there Conditions in Place for the Effective Functioning of the Internal Control System in the Public Sector

Internal control systems created by heads of institutions often do not improve the results of activities when available resources are used. Moreover, there is no responsible institution in Lithuania that could form a state policy in the field of internal control and the law which defines it does not meet the requirements of best international practices. This was revealed by the National Audit Office which evaluated if the conditions allow the internal control system of public sector to function effectively.

An effective internal control is one of the most important tools to help managers and employees control the risks at acceptable costs, achieve results consistently and strategically, and be beneficial to the society.

The findings of the audit show that the majority of audited ministries and selected municipalities do not direct internal control systems to an appropriate business  organization skills and quality. This shows irresponsible approach to the whole system. For example, the activity risks and if the selected control measures are effective (with the cost and benefits assessed) are not evaluated; excess measures are not refused by defining the most important business processes; constant system monitoring, internal and external communication is not being improved. However, there are some good examples when managers try to ensure proper internal control.

Heads of institutions are not obliged by law to create the system by following the guidelines of the public sector internal control standards created by the International Organisation of Supreme Audit Institution INTOSAI. According to the guidelines, managers should establish five most important elements: control environment, risk evaluation, control activities, notification and communication, as well as monitoring.

“Managers should be responsible for selecting the policy of the internal control system, which would be assigned to a specific institution, perform system analysis by covering all elements, and declare assumed responsibility for the creation and improvement of the system. This would help employees understand the internal control objectives and the benefits the system would provide when activities are performed rationally, effectively, responsibly, and transparently. Also, internal auditors should contribute to the improvement of the system”, - says Rasa Kudžmienė, deputy of the director who performed the audit.

The Supreme Audit Institution draws attention to the fact that the current law of internal control and internal audit does not provide a sufficient foundation for an effective creation, maintenance, and evaluation of the internal control system, therefore it needs to be changed. Moreover, the Ministry of Finance only manages financial control and internal audit. The Ministry is not held responsible for the creation of requirements, methodological guidance and supervision of the whole internal control system. Public auditors presented the recommendations to the Ministry of Finance and contacted the Government with a request to assure that the draft law will be submitted to the Parliament (Seimas).