160Mandate of internal auditors
Internal auditors shall—
- (a) review and evaluate budgetary performance, financial management, transparency and accountability mechanisms and processes in national government entities, including Parliament and Judiciary;
- (b) have a duty to give reasonable assurance through the audit committee on the state of risk management, control and governance within the organization; and
- (c) review the effectiveness of the financial and non-financial performance management systems of the entities.
161Compliance with professional standards and code of ethics
Internal auditors shall comply with the International Professional Practices Framework as issued by the Institute of Internal Auditors from time to time and shall conduct audits in accordance with policies and guidelines issued by the Public Sector Accounting Standards Board to ensure uniformity and consistency across national government.
162Independence of the internal auditor
(1) The Head of Internal Audit unit under a national government entity shall enjoy operational independence through the reporting structure by reporting administratively to the Accounting Officer and functionally to the Audit Committee.
(2) An Accounting Officer shall ensure that the organizational structure of the internal audit unit facilitates—
- (a) the entity to accomplish its internal audit responsibilities;
- (b) the internal auditor with sufficient authority to promote independence and to ensure broad audit coverage, adequate consideration of internal audit reports;
- (c) appropriate action to be taken on internal audit recommendations; and
- (d) the internal auditor to be independent of the programs, operations and activities he or she audits to ensure the impartiality and credibility of the internal audit work undertaken.
(3) The internal auditor shall have unrestricted, direct and prompt access to all records, officials or personnel holding any contractual status and to all the premises and properties of the entity.
(4) The internal auditor shall respect the confidential nature of information and shall use such information with discretion and only in so far as it is relevant to reach an internal audit opinion.
(5) All internal audit activities shall remain free of influence by any element in the organization, including matters of audit selection, scope, procedures, frequency, timing, or report content to permit maintenance of an independent and objective mental attitude necessary in rendering reports.
(6) Internal auditors shall have no direct operational responsibility or authority over any of the activities they review, and accordingly, they shall not develop nor install systems or procedures, prepare records, or engage in any other activity which would normally be audited.
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THE INTERNAL AUDITOR-GENERAL DEPARTMENT OF THE NATIONAL TREASURY
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163Independence of Internal Auditor-General
The office of the Internal Auditor-General shall be an office in the National Treasury.
164Functions of Internal Auditor-General Department
The Internal Auditor-General, in leading the internal audit function within the National Treasury, is responsible for policy formulation and strategic direction of internal audit function within the national government entities including—
- (a) advising the Cabinet Secretary and the Principal Secretary on emerging issues in internal auditing;
- (b) developing and implementing the use of innovative approaches in performing independent assessment of systems, controls and efficiencies guided by professional standards;
- (c) supporting the entities efforts to achieve their objectives;
- (d) promoting national government-wide risk management and provide the management with consulting services to improve the overall national government operations;
- (e) providing capacity building for both levels of governments including developing curriculum, training materials and undertake training for audit committees; and
- (f) reporting annually to the National Treasury on the internal audit function performance.
165The role of Accounting Officer in risk management
The Accounting Officer shall ensure that the national government entity develops—
- (a) risk management strategies, which include fraud prevention mechanism; and
- (b) a system of risk management and internal control that builds robust business operations.
166Performance appraisal
(1) Each year the internal audit unit of a national government entity shall assess its own effectiveness through an internal performance appraisal and shall carry out annual review of the performance of the internal audit activity commenting on its effectiveness in the annual report to National Treasury.
(2) Each year the Audit Committee shall carry out annual review of the independence, performance and competency of the internal audit unit and comment on their effectiveness in the annual report.
(3) At least once every three years but not more than five years, internal audit unit shall undergo a professional assessment of its effectiveness undertaken by a professionally recognized body or institution.
167Reporting material breaches and persistent material breaches
When indications of fraud, material breaches and wasteful expenditure have been identified in a State Organ, or any other national government entity in sections 92 of the Act, the head of the internal audit unit shall immediately notify the Cabinet Secretary.
168Prohibition from conducting assurance services
An internal auditor shall not perform audit assignments for providing assurance relating to activities and structures on which he or she has provided consulting services or in which he had been employed over in the last twenty four months.
169Disciplinary liability on internal auditors
Heads of internal audit units and the internal auditors shall bear legal and disciplinary liability for failure to discharge their responsibilities under the Act and these Regulations: Provided that assurance procedures alone even when performed with due professional care shall not be a guarantee that all significant risk shall be identified.
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INTERNAL AUDIT PLANNING, PERFORMANCE AND REPORTING
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170Risk based audit assessment strategic plan
(1) Internal audit planning shall be carried out on the basis of risk assessment and shall be set out in a three-year strategic plan, on the basis of which an annual internal audit unit plan shall be developed.
(2) The annual work plan developed in paragraph (1) of this regulation shall be—
- (a) submitted to the audit committee by the 15th February each financial year; and
- (b) approved by the audit committee and shared with the Accounting Officer of that entity, in sufficient time for inclusion in the budget of that entity.
171Communicating results
(1) The findings and recommendations arising from each internal audit assignment shall be promptly reported to the accounting officers.
(2) The final report, including the actions taken by the accounting officer shall be reported to the audit committee in the format determined by the Cabinet Secretary.
(3) When updating the management of the progress of an audit assignment, the internal auditor shall—
- (a) give an oral preliminary report which shall be confirmed in writing within seven (7) days;
- (b) discuss the findings, conclusions and recommendations with the auditee;
- (c) issue a signed written report after each internal audit assignment that is objective, clear, concise, constructive and timely;
- (d) give reports which clearly present the purpose, scope and results of the audit; and
- (e) give reports with recommendations for potential improvement, suggestions of corrective actions and acknowledgement of satisfactory performance.
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IMPLEMENTATION OF AUDIT RECOMMENDATIONS
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172Enforcement of internal audit recommendations
(1) The accounting officer of the concerned entity shall be responsible for the implementation of the recommendations made in the audit reports and shall develop response and action plan which he or she shall submit to the Chairperson of the audit committee within fourteen days.
(2) The response and action plan submitted to chairperson of the audit in paragraph (1) of this regulation shall be submitted to the Audit Committee for follow up to ensure their implementation.
173Preparation and submission of quarterly and annual audit reports
(1) Each head of internal audit shall prepare a quarterly internal audit report which shall cover areas provided for in guidelines and shall be in the format issued by the Cabinet Secretary.
(2) The quarterly report in paragraph (1) of this regulation shall be submitted within 14 days of the end of the quarter to the accounting officer of the concerned entity, the Audit Committee and the National Treasury.
(3) At the end of each financial year, the Internal Auditor- General shall prepare for the national government clear and comprehensible annual report that consolidates the quarterly audit assurance reports prepared by all internal audit units in national government entities, in accordance with formats prescribed by the Accounting Standards Board.
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AUDIT COMMITTEES
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174Establishment of audit committees
(1) Subject to paragraph (2) of this regulation, each national government entity shall have an audit committee.
(2) The National Treasury, where deemed necessary, may approve the sharing of one audit committee by two or more entities.
(3) In the case of a shared audit committees referred to in paragraph (2), the appointing authorities of the concerned entities shall jointly appoint the chairperson and members of the joint audit committee in consultation with the National Treasury.
(4) There shall be a minimum of three members, excluding a person who shall be appointed to represent the National Treasury in each audit committee and a maximum of five of whom at least two shall be from recognized professional bodies.
(5) The chairperson of an audit committee shall be independent of the national government entities, be knowledgeable of the organization, have the requisite business and leadership skills and shall not be a political office holder.
(6) In addition to paragraph (5), majority of members appointed to the audit committee shall not be past or present employees of the entity, and shall not have served as an employee or agent of a business organisation which has carried out any business with the concerned entity in the last two years.
(7) All members of an audit committee shall—
- (a) be holders of at least a first degree from a recognized university in Kenya;
- (b) have a good understanding of government operation, financial reporting or auditing; and
- (c) have a good understanding of the objects, principles and functions of the entity to which they are to be appointed.
(8) Each Accounting Officer of an entity shall ensure that the audit committee is adequately funded and supported.
(9) The chairperson of an audit committee shall not serve concurrently as a member of any other audit committee of the concerned national government entity, but its members can serve in up to a maximum of three audit committees at the same time.
(10) Deleted by L.N. 229/2015, r. 8(d). [ L.N. 229/2015, r. 8.]
175Duties of the audit committees
The main function of the audit committee shall be to—
- (a) support the Accounting Officers with regard to their responsibilities for issues of risk, control and governance and associated assurance but the responsibility over the management of risk, control and governance processes remains with the management of the concerned entity; and
- (b) follow up on the implementation of the recommendations of internal and external auditors.
176Composition of audit committees
(1) The Accounting Officer of a national or county government entity shall not be a member of the audit committee, but shall attend a meeting of the audit committee by the invitation of the chairperson of the committee.
(2) Audit Committee members shall be persons of integrity and meet the requirements of Chapter Six of the Constitution.
177Terms of appointment
(1) Members of audit committees shall be appointed, for a term of three years and shall be eligible for re-appointment for a further term of three years.
(2) Despite the provision of paragraph (1), after expiry of every term at least one third of the committee shall retire and not be eligible for re-appointment.
(3) The roles and responsibilities of the audit committee shall be laid out in the guidelines issued by the Public Sector Accounting Standards Board.
178Vacancy of office
(1) A person shall cease to be a member of an audit committee if—
- (a) that person is convicted of a criminal offence and sentenced to a term of imprisonment of not less than six months; or
- (b) that person is absent from two consecutive regular meetings of the committee without leave of absence; or
- (c) that person resigns, in writing, from the audit committee; or
- (d) that persons' term of office expires; or
- (e) that person ceases to be a member by virtue of withdrawal of his or her nomination to the audit committee by the nominating institution; or
- (f) that person becomes an employee or officer of the concerned entity; or
- (g) that person is discovered to have a conflict of interest as described in at the time of his appointment and failed to disclose it; or
- (h) the audit committee is disbanded.
(2) The National Treasury shall be informed of any contemplated termination of the services of a person serving on an audit committee for its concurrence.
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FUNCTIONS AND RESPONSIBILITIES OF THE AUDIT COMMITTEE
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179Meetings of the audit committee
(1) The audit committee shall meet at least once in every three months.
(2) Each member of the audit committee shall have one vote.
(3) The audit committee shall make decisions by resolution.
(4) In the event of a tie vote, the chair shall be entitled to cast a second vote.
(5) A majority of the members of the audit committee that includes at least fifty (50%) percent plus one member shall constitute a quorum for the meetings of the committee.
(6) The chair of the audit committee shall—
- (a) ensure that minutes are taken at each meeting and provided to the members of the committee before the next meeting;
- (b) have access to management, the head of internal audit and external auditors; and
- (c) send or cause to be sent—
- (i) all notices of audit committee meetings at least fourteen days before the meeting; and (ii) all minutes of audit committee meetings.
(7) If at any meeting of the audit committee the chair is not present, the members shall elect a chair for purposes of conducting that meeting.
180Code of conduct
Any code of conduct of public officers shall also apply to members of the audit committee in relations to their functions, powers and duties as members of the committee.
181Remuneration and compensation
(1) Members of the audit committee shall be paid an allowance on account of attendance of audit committee meetings as determined by National Treasury in consultation with the Salaries and Remuneration Commission.
(2) A national government entity shall reimburse members of its audit committee for expenses incurred while attending to audit committee duties. [ L.N. 229/2015, r. 10.]
182Capacity building for Audit Committees
The accounting officer shall—
- (a) provide capacity building to all public national government entity audit committees;
- (b) provide policies and guidelines on audit committees;
- (c) monitor the effectiveness of audit committees; and
- (d) provide periodic updates of Audit committee activities through the website.