Under the Local Government Act 2009, Local Government Regulation 2012, City of Brisbane Act 2010 and the City of Brisbane Regulation 2012 (the Acts), all local governments in Queensland are required to establish an efficient and effective internal audit function, and each large local government must establish an Audit Committee. Show
International Professional Practices FrameworkThe Department has used information from the International Professional Practices Framework (IPPF) published by the Institute of Internal Auditors (IIA) in this guidance. In addition reference has been made to resources issued by the Queensland Audit Office and Queensland Treasury. Internal AuditWhat is internal audit?The Acts do not define internal audit, instead they specify some requirements that a local government's internal audit function must perform. The IPPF provides a useful definition which demonstrates the wide range of activities performed by an internal audit function:
The difference between internal and external auditA local government's internal audit function performs a different role to external audit. The external audit provides independent assurance that the annual financial statements are reliable and comply with prescribed requirements. It is primarily a financial audit which assesses the internal control framework and focuses on the material components of the financial statements and how significant financial reporting risks have been dealt with by management. In contrast, the type of internal audits performed each year will vary depending upon each local government’s needs. They should be based on a strategic analysis of the individual local government’s risks and operations. The aim of the audits is to improve operations and manage risk, and they may include:
External audits may seek to rely on some of the work undertaken by internal audit, if appropriate, to avoid duplication of effort and to achieve a more efficient audit process. Such reliance will only occur where external audit is satisfied that the work of internal audit is adequate for the purpose of the external audit. Benefits of an internal audit functionAn effective internal audit function will assist chief executive officers (CEOs) and senior management to improve the effectiveness of operations (including the cost effectiveness) and to manage risks. Internal audit can significantly add value to a local government’s internal control, risk management, and governance processes. Internal audit assesses both the financial and non-financial performance of the local government. Characteristics of an internal audit functionAn excellent source of information on internal audit is Queensland Treasury’s Financial Accountability Handbook – Volume 2.0 Governance. Indicators of an efficient and effective internal audit function include:
Internal audit charterThe internal audit charter must be consistent with generally accepted auditing and ethical standards, including the IPPF. It should be approved by the CEO and reviewed annually. The charter defines the purpose, accountabilities, authorities, and responsibilities of the internal audit function. It should be presented in such a way that management and staff have a clear understanding of the objectives of the function. Compliance with professional standardsAll internal audit activity should be conducted in accordance with the IPPF. In addition, the people undertaking internal audit activity should possess relevant qualifications and have undertaken appropriate training. Legislative requirements that relate to internal auditThe Acts require all local governments in Queensland to establish an efficient and effective internal audit function. In addition, the following minimum requirements are specified: For each financial year, a local government must:
The internal audit plan must contain statements about:
These statements may be contained in the internal audit strategy document. Audit committeesAll large local governments are required to have an audit committee. A large local government is a local government belonging to a remuneration category of 3 or higher as published in the remuneration schedule set annually by the Local Government Remuneration Commission. Composition of audit committeesThe audit committee must consist of at least three and no more than six members, and include one, but no more than two councillors. At least one member must have significant experience and skills in financial matters. The local government must appoint one of the members as chairperson. Brisbane City Council may not appoint a councillor as chairperson. The CEO cannot be a member of the audit committee but can attend meetings of the committee. It is also inappropriate for any person who is responsible for, or involved in, the local government’s financial or internal audit functions to be a member. The Department recommends that at least one independent member, with relevant financial skills, is appointed to the audit committee. Audit committee charter and annual work programLike the internal audit function, the audit committee should have a charter. The charter guides the behaviour and activities of the audit committee and includes:
An example audit committee charter is included in Queensland Treasury’s Audit Committee Guidelines: Improving Accountability and Performance. Each year, the audit committee should prepare and follow a work program. The program must include a review of:
In addition, the work program should include related matters in accordance with the audit committee charter. For example:
Audit committee meetingsThe audit committee is required to meet at least twice each financial year. After each meeting, a report must be prepared about matters reviewed, and recommendations made at the meeting. The report must be given to the CEO who must table the report for consideration at the next council meeting. Meetings should be conducted in accordance with the audit committee's charter. The relationship between internal audit and the audit committeeThe Acts include a requirement that internal audit provide the audit committee with progress reports, summaries of recommendations and details of any action taken or not taken in response to the recommendations. In addition to reviewing these documents the audit committee must review the internal audit plan for the current financial year. Additional resourcesThe Institute of Internal Auditors Australia has published a wide range of fact sheets and practice guides. These can be found at: www.iia.org.au The Queensland Audit Office has published several blogs on audit committees. These can be found at: www.qao.qld.gov.au/blog Further informationAny enquiries on this matter should be email to: Or addressed to: Governance and Capability Department of State Development, Infrastructure, Local Government and Planning PO Box 15009 City East Brisbane QLD 4002
Last updated: 17 Aug 2022 |