Journal of Innovations and Sustainability, Vol. 4, No 2, 2018

ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)

Journal of Innovations and Sustainability Volume 4, Number 2, 2018

Innovations and Sustainability Academy 2018

Journal of Innovations and Sustainability Volume 4, Number 2, 2018 https://sites.google.com/site/journalinsust/

Editor-in-Chief: Prof. Vesela Radović, Ph.D. Managing Editor: Assoc. Prof. Ekaterina Arabska, Ph.D.

Š Innovations and Sustainability Academy 1, Lotos Str., Plovdiv 4006, Bulgaria

E-mail: insustacademy@gmail.com https://sites.google.com/site/insustacademy/

2018 ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)

ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)

Volume 4 Journal of Innovations and Sustainability

Number 2 2018

Contents

Foreword .............................................................................................. 5 SOCIAL SCIENCES ................................................................................ 7 Bancassurance – Application and Advantages for the Insurance Market in Bulgaria ........................................................................................... 9 Valentina Ninova D. A. Tsenov Academy of Economics – Svishtov, Bulgaria Microinsurance – Potential for Development in Bulgaria ..................... 23 Nikolay Ninov & Valentina Ninova D. A. Tsenov Academy of Economics – Svishtov Improving the Internal Auditing Procedure by Using SIPOC Diagrams . 35 Tzvetelin Gueorguiev Angel Kanchev University of Ruse, Ruse, Bulgaria

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Volume 4 Journal of Innovations and Sustainability

Number 2 2018

Foreword This issue of the Journal of Innovations and Sustainability includes articles on some specific topics in the field of economics as bancassurance, microinsurance and auditing providing new insights into and recommendations for the contemporary organizations’ practices and development.

The first article discusses the relationship and interaction between the insurance companies and the commercial banks through the example of Bulgarian practice outlining the benefits for all persons involved and providing conclusions on the advantages of bancassurance.

The second one presents the potential for development of microinsurance in Bulgaria as an alternative solution to improve the social protection system and to increase the social security, especially for those in extreme poverty. The data on the poverty in the country are analyzed and compared to other countries, peculiarities of microinsurance are presented, incl. some of the weak points, and the positive aspects of its application as a means of compensation for some vulnerable groups, thus contributing to the integration of low-income people in society and ensuring a higher level of social security.

The question of auditing and the ways of its improvement in an educational organization is scrutinized in the third article which makes a proposal for an improved auditing procedure describing its structure and elements, sequence of process steps and information flows according to the requirements of the ISO certification.

The studies presented could be distinguished by the original approaches towards the economic and organizational aspects of sustainable development and the conclusions for the unrevealed and still unused potentials of less known instruments and practices in a country as Bulgaria. They provide ideas and put the bases for further research raising some important questions for next discussions and examinations regarding the role of the economic theory, practice and innovation in sustainable development.

Ekaterina Arabska Innovations and Sustainability Academy

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Journal of Innovations and Sustainability

SOCIAL SCIENCES

Volume 4, Number 2, 2018

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Volume 4 Journal of Innovations and Sustainability

Number 2 2018

Bancassurance – Application and Advantages for the Insurance Market in Bulgaria Valentina Ninova* D. A. Tsenov Academy of Economics – Svishtov, Bulgaria

Abstract In the world practice there is interweaving of various economic activities, including activities in the field of banking and insurance. This fact inevitably raises the question of the relationship and interaction between the insurance companies and the commercial banks. An example of this collaboration over the last three decades is the so-called “bancassurance”. Its main purpose is the possibility of distributing insurance services by the use of the banking network by the insurance companies. In this study an attempt has been made to present the practice of applying bancassurance in Bulgaria and the benefits for customers, commercial banks and insurance companies are derived.

Keywords: insurance, insurance market, distribution channels, bancassurance.

INTRODUCTION The dynamically developing and competitive environment predetermines the need for searching new alternatives to distribute the services, which insurers offer. As a result, insurance companies are increasingly starting to apply flexible approaches to attract customers. Some of them find assistance from other economic entities, whose main business is different from insurance.

*

Corresponding author: Assist. Prof. Valentina Ninova, Ph.D.

E-mail: v.ninova@uni-svishtov.bg

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In recent decades, insurance companies and banking institutions have demonstrated fruitful cooperation. The aim is to expand the market share and strengthen the positions in the respective markets. One of the ways of interacting is through the implementation of the so-called bancassurance. As a part of the European Union market, related to the free movement of goods and services, this interaction is accompanied by a number of benefits for commercial banks, insurers and borrowers (insured persons). Therefore, the main aim of this study is to identify the advantages of bancassurance in the distribution of insurance products. In this regard, the most common ways of distributing insurance products in the field of both General and Life Insurance will be considered, namely:  direct sales;  distribution by an insurance agent;  distribution by an insurance broker;  bancassurance.

The focus will be on the so-called bancassurance. The above-mentioned distribution channel for insurance products is in fact based on the relationship between commercial banks and insurance companies. Therefore, the options for interaction between them will be presented.

BANCASURANCE IN THE WORLD THEORY AND PRACTICE Each insurance company seeks to apply ways of distributing insurance products, which increase its market share while meeting the needs of potential customers.

Both the theory and practice know different ways of distributing the insurance service. The popularity of each channel differs depending on the market and the insurance product. This diversity is in interest of consumer in particular. On the other hand, it enables insurers to adapt to different cultures, needs and preferences of the different markets on which they work.

In the world theory and practice, several options for interaction between insurance companies and commercial banks are known (Paneva, 2006, p. 19-20):  insurance of banks’ risks – insurance companies may offer cover against some risks to which commercial banks are exposed. Insurance products are both in the field of General and Life Insurance. Examples of insurance policies related to bank risks are “Credits” and “Guarantees” insurances;  banks as financial advisors – banks are the institutions that have information on financial situation of consumers using their services. As such, they can act as

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consultants to insurance companies in relation to the offered insurance products, which are responsible for the terms and means available to their clients;  banks as insurance agents – as a distribution body in the insurance and legal person, commercial banks can mediate for the conclusion of insurance contracts as insurance agents. Thus, insurance companies have an interest in attracting commercial banks as a part of the distribution and supply chain of both General and Life Insurance;  general financial supply (complex financial service – note of the author) – it is related to the overall financial service of the clients. To implement this service, a financial center

is

formed,

which

allies

various

financial

institutions

(“financial

supermarket”) – mainly banks and insurance companies. Other financial and nonfinancial institutions may be included. The aim is to provide the financial products for a client in one place. This creates maximum convenience for customers “under one roof”;  cross sales – this is the so-called “mutual placement”. Here, through bank branches, insurers distribute insurance products to banks’ customers and commercial banks use the offices of insurance companies to distribute their banking services. Within the range cross sales, one of the most popular method of distribution of insurance products in the world over the last decades, namely the so-called bancassurance, falls. Special attention will be given in this study to this method.

For the first time, the term “bancassurance” was used in France and was created by combining the two words in French “banque” (bank) and “assurance” (insurance). It is presented as way of distributing insurance products by the bank branches (Clipici & Bolovan, 2012). Bancassurance must be understood as: “strategy adopted by banking or insurance companies aimed at operating in financial services markets with more or less integrated mode of action. In practice, bancassurance is a term that is used continuously to describe a new strategic reference point for financial institutions in business to private customers” (Swiss Re, 1992, p. 4). By its nature, it is a way of using the relationship between the bank and its clients by the insurers.

The main purpose is the sale of insurance products (Gonulal et al., 2012). This is not a sort of interweaving of the two activities – banking and insurance, but rather a cooperation between them. Here, banks can offer insurance products such as an insurance agent, an insurance broker or the insurance product to be sold by a bank employee (CEA Statistics N°39. Insurance Distribution Channels in Europe. March 2010, p. 17). The insurance products they offer can be in the field of both General

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and Life Insurance. In this line of thought, bancassurance can be seen as one of the ways for effective development of General and Life Insurance.

Specifying the options for the relationship between the two financial institutions (a bank and an insurance company), whose purpose is the distribution of insurance products, the next level of relationship between them, namely their transformation into legal relationships, can be traced. In theory and practice, the following forms of contracts related to bancassurance are known (Clipici & Bolovan, 2012): 1) strategic alliance – in this form of legal relationships between the insurance company and the bank, the relationship between the two institutions is as follows: the bank sells only the products of the insurance company but does not perform other insurance services (for example – related to service function of the insurance company or the liquidation of the damage); 2) full integration – this form of agreement between the bank and the insurance company implies full integration of banking and insurance services. Here, the banking institution is the one selling insurance products. This is done under the brand of the bank itself, which acts as supplier, meeting the financial needs of clients.

This form of agreement predetermines the bank to have an additional main business which resembles that of the insurer; 3) mixed models – in applying this form, the marketing approach is carried out by insurer’s employees and the bank’s employees are responsible for generating potential clients. This means that the bank’s database is provided to the insurer. This mixed approach requires less technical investment.

The main sections in which insurance business can be developed in most countries are two – Life Insurance and General Insurance. Therefore, in this section, it will be analyzed information on the used distribution channels (seven channels – bancassurance,

direct

writing,

total

intermediaries,

agents,

brokers,

other

intermediaries, other distribution channels) in the placement of the insurance service in several European countries. Figure 1 illustrates the main channels according to their share in the placement of the life insurance products in sixteen European countries.

In 2015 bancassurance is a dominant model for distribution of insurance services in some of the largest European countries – Italy, France, Spain and others including Estonia, the Netherlands and Denmark. The shares of bancassurance for those countries reach values in the range of 64% to 79% compared to gross written premium. In other countries, such as Malta, Portugal and Turkey, this share reaches even 80-82% (European Insurance in Figures, 2016 data).

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Figure 1. The share of life insurance distribution channels2015 (% of gross written premium) Source: European Insurance in Figures, 2016 data.

On the other extreme with regard to distribution of life insurance policies are countries such as Bulgaria, Slovenia and Slovakia. According to a report by the Financial Supervision Commission, 80% of gross written life insurance premiums in Bulgaria are due to sales through traditional intermediaries (insurance agents and brokers). In Slovakia, this percentage is also 80% and in Slovenia – 66%.

Although bancassurance is applied in insurance practice, this activity is not separated in our country as a distinct distribution channel because statistics do not distinguish it from the traditional intermediation. This issue will be discussed later in the paper.

Based on the information presented in Figure 1, bancassurance is outlined as a major distribution channel in the field of Life Insurance as whole, for the mentioned European countries. The reasons for its predominant role can be found in: 1) the interest which banks have in relation to long-term engagement with their current and future clients; 2) the possibility that the life insurance may serve as collateral for a consumer loan or the use of temporary funds by the insured person at the expense of the bank;

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3) the ability and convenience of customers to receive several financial services in one place.

From the presented information and analysis, we can summarize that the prevailing way of contracting life insurance policies in Europe is through the application of bancassurance. However, for Bulgaria there are no data on the realization of premium income on concluded life insurance policies through intermediary of commercial banks.

Unlike Life Insurance, the supply of an insurance service in the General Insurance section still follows the traditional distribution channels. Insurance agents and brokers are the leading channel for the distribution of property insurances in the European countries mentioned above. The information, which is presented in Figure 2, unambiguously proves this.

Figure 2. The share of general insurance distribution channels 2015 (% of gross written premium) Source: European Insurance in Figures. 2016 data.

Insurance agents are the dominant distributional channel in Italy and Slovakia – 79%, Turkey – 66%, Slovenia – 65%, Poland – 61%, Germany – 59% and Portugal – 54% (percentages are based on gross written premiums). In Bulgaria, the share of gross written premiums on insurance contracts concluded in the field of General Insurance through the intermediation of insurance agents is about 30%.

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In addition to insurance agents, the other prevalent distribution channel in Europe in the field of General Insurance is through insurance brokers. The channel amounted to 61% of the gross written premiums for General Insurance in Belgium, 52% in the United Kingdom and 50% in Bulgaria.

The reasons for the described prevalence in relation to the distribution channels in General Insurance may be sought in the following directions: ďƒź in the field of General Insurance, the insurance products are mainly related to the motor insurance and most of all with the obligatory Motor Third Party Liability Insurance (including the Green Card Insurance). These are the insurances whose insurance subject remains a little bit out of the business of commercial banks. Bank employees would direct their client to take out motor insurance only in cases where the person borrows money from the bank for the purpose of purchasing or maintaining a motor vehicle; ďƒź other insurances that fall within the scope of General Insurance are for instance Cargo insurances, agricultural insurances and others. The commercial bank could mediate for the conclusion of such insurance policies when their clients use borrowed funds for the business they carry out (freight transport, agricultural production etc.) and it is required an additional guarantee to the bank that the borrowed funds will be refunded with the corresponding interest and taxes.

There are also insurance products that meet the needs of banks and their clients.

The Credit and Guarantee insurances are an example of this. On the other hand, the granting of a mortgage loan is often linked to the bank’s requirement that the purchased real estate must be insured. Commercial banks have an interest in mediating such deals.

Although not as dominant channel for the distribution of insurance products, bancassurance is also applied in the field of General Insurance on the European Insurance market.

BANCASSURANCE DEVELOPMENT IN BULGARIA As it has been mentioned above, our statistics do not distinguish the supply of insurance products via commercial banks from traditional distribution channels to supply via agents and brokers. With the adoption and subsequent publication of an Ordinance on the Amendment and Supplement to Ordinance 2 of the BNB of 2000 on the Licenses, Approvals and Permissions Granted by the BNB (promulgated in State Gazette isuue19 of 28 February 2003), it has been added to Article 3 new

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paragraph 4, and subsequently paragraph 3 (promulgated in State Gazette 36 of 2009), the content of which is: “Unless otherwise ordered, license for a bank gives the right to mediate in the provision of the services for which the bank is licensed, as well as to an activity as an insurance agent and an insurance intermediary”. Thus, all banking institutions licensed to carry out banking activities can offer insurance products as an insurance agent.

The commercial banks operating on the Bulgarian market took advantage of the opportunity.

Table 1. Commercial banks in Bulgaria working as insurance agents (number) Banks licensed in

Foreign banks’

the Republic of

branches in the

Bulgaria

Republic of Bulgaria

22

5

Total number of commercial banks in Bulgaria 27

Banks which as legal entities are insurance agents 16

Source: BNB, FSC and author’s study. The information is as of 13 July 2017.

According to official data on the Bulgarian market, there are twenty-seven commercial banks. According to the information provided in the table, sixteen of them are included in the register of insurance agents kept by the Financial Supervision Commission. They are registered as legal entities. This means that approximately 66.67% of banks in Bulgaria are part of insurance business and work as insurance agents. On the one hand, the use of commercial banks as a channel of distribution for insurance products is only one of the alternatives for interaction between them and insurance companies. On the other hand, it suggests the application of so-called bancassurance in Bulgaria.

For more details of the study, the following table shows the information on commercial banks, which are also insurance agents and the insurance companies with which they work.

Based on the information presented in the table above, it can be seen that some commercial banks in Bulgaria, which are also insurance agents, work with more than one insurance company. The legislation in Bulgaria provides for this possibility. The condition is that the insurance agent offers different insurance products of insurance companies with which there is a relationship (Code on Insurance. Promulgated in State Gazette isuue102 of 29 December 2015, Art. 315).

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Table 2. The relationship between commercial banks and insurance companies Insurance agent

UniCredit Bulbank AD

DSK Bank EAD Eurobank Bulgaria AD Raiffeisenbank (Bulgaria) EAD Societe Generale Expressbank AD First Investment Bank AD CIBANK EAD Bulgarian-American Credit Bank AD ProCredit Bank (Bulgaria) EAD TBI Bank EAD Commercial Bank Victoria EAD Investbank AD Municipal Bank AD International Asset Bank AD Texim Bank AD BNP Paribas SA – Sofia branch

Insurance company Cardiff Lifeassurance ,Bulgaria branch, Kcht; Cardiff Assurance, Bulgaria branch, Kcht; Generali Insurance AD; Allianz Bulgaria Đ?D; Allianz Bulgaria Life AD Groupama Insurance and Groupama Life Insurance company DZI - General Insurance EAD UNIQA Life AD; UNIQUA AD Generali Insurance AD until 01 March 2017 FI Health Insurance AD DZI Life Insurance EAD; DZI - General Insurance EAD UNIQA Life AD; UNIQUA AD Generali Insurance AD UNIQA Life AD; UNIQUA AD Life Insurance Company Saglasie EAD ZAD Bulgaria OZK Insurance AD Asset Insurance AD Life Insurance Company Saglasie EAD Cardiff Lifeassurance, Bulgaria branch, Kcht; Cardiff Assurance, Bulgaria branch, Kcht

Source: BNB and FSC. The information is as of 13 July 2017.

On the one hand, as insurance agents and legal entities, banks receive remuneration for the insurance contracts concluded by their representatives. The remuneration for the intermediary activity they perform is in the form of commission and this is another incentive for commercial banks to participate in the insurance business. On the other hand, as stated above, the provision of banking and insurance services in one place (in a branch of a commercial bank) is also a convenience for the clients of the bank and the insurance companies are also interested.

Referring to the information presented in the two tables and figures, there is a contradiction between the officially presented data on the channels for offering and concluding insurance contracts in Bulgaria. According to the register of insurance agents in Bulgaria, which are legal entities (led by the Financial Supervision Commission), it is proved that bancassurance is being applied. In spite of its use as a way of concluding insurance contracts, in the insurance practice in Bulgaria, there are still no official data on premium income on insurance contracts through the intermediary of commercial banks.

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By offering their bank products and services, (consumer credit or mortgage, debit or credit cards, etc.), commercial banks are increasingly demanding the conclusion of insurance according to the risks associated with the product they offer. From the information in Tables 1 and 2, it was found that commercial banks in Bulgaria, which also work as insurance agents, are more than half. Assuming that commercial banks as insurance agents are directly part of the insurance business, there is another alternative where they can participate in the insurance market. This participation in the insurance activity, although indirectly, is carried out by some banks in Bulgaria.

It is realized through a requirement on the part of the banks to their clients to take out insurances related to the banking services they use. Representatives of the banking institution direct their clients to an insurance broker with whom the bank also has a relationship. Unlike insurance agents, insurance brokers are not placement body owned by the insurance company. They protect the interests of policyholders. At the same time, they offer insurance products of one or more insurance companies. Brokers are another option to reach insurances to customers (bank clients and subsequently insured persons). It is therefore advisable, to provide information on commercial banks in the country, which enable their clients to turn to insurance brokers, to offer such an insurance product that meets their needs and desires. Such information is presented in the following table as a result of a conducted research.

Table 3. Partnerships between commercial banks and insurance brokers in Bulgaria Commercial bank United Bulgarian Bank AD DSK Bank EAD Piraeus Bank Bulgaria AD UniCredit Bulbank AD D Commerce Bank AD

Insurance broker UBB - Insurance Broker AD DSK Leasing Insurance Broker EOOD Piraeus Insurance Brokerage EOOD UniCredit Insurance Broker EOOD D Insurance Broker EOOD

Source: FSC and the websites of insurance brokers, the information is as of 13 July 2017.

The information presented in Table 3 shows that five of twenty-seven commercial banks operating on the territory of the country have partnerships with insurance brokers. In this case, the banks are not remunerated for brokering, as the intermediary is another legal entity, but the banks and insurance brokers listed in the table are from one financial group. By requiring their clients to take out certain insurance policy (depending on the banking product or service which a client uses),

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commercial banks are indirectly involved in the insurance business. The positive side of this specific, indirect type of relationship between banks and insurance companies allows commercial banks working with insurance brokers to direct their clients to an insurance product that best suits their needs. Thus, the bank has the opportunity to acquire a satisfied customer who has received complex banking and insurance services in one place.

The relative use of the bank as an institution, which mediates the conclusion of insurance contracts in our country, also has the following advantages:  easy access to customers who often visit their bank. When they contact with the serving bank, they find direct answers to their financial needs, including those related to insurance. Every individual (physical or legal) has specific financial needs, and banks are those institutions that have information about the financial status of their clients. By offering insurance products, bank employees can act as consultants to their clients by offering them various alternatives;  insurance contracts concluded through the intermediary of commercial banks are specially designed to be easy understand from clients and bank employees, who will explain insurance products, as the bank’s employees are presumed not to be fully aware of the insurance market and everything related to it. It is logical to have them trained, but the fact related to the main function of commercial banks, namely the allocation and gathering of funds, should not be missed;  the sale of insurance products through the use of banking networks should lead to a reduction in the expenditures associated with the distribution of insurance products (administrative-operating expenditures such as rent, lighting, heating, etc.) and this will also lead to lowering the cost of insurance.

CONCLUSION The changing market environment, related to the need for complex financial services to customers, as well as the pursuit of strengthening the market positions of financial institutions (insurance companies and commercial banks) predetermine the need to apply flexible methods to achieve the objectives set.

The use of bancassurance as a distribution channel for insurance products is more pronounced in the field of Life Insurance. In Europe, this channel is a leading channel of distribution for life insurance products. This extends the range of insurance business, new insurance products are created and developed, and the insurance premium of insurers is increased. The benefit of its application is not only to the

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insurance companies whose products are distributed. On the other hand, commercial banks receive remuneration for their activity related to the distribution of insurance products and at the same time, they have the opportunity to meet the needs of clients in the field of banking and insurance. The customers are able to get complex financial services in one place and save time and money.

Still in our country, there are no official data on the amount of premium income from bancassurance insurances. However, the fact that about 66.67% of commercial banks in Bulgaria are registered as insurance agents, and five out of twenty-seven of them connect their clients to a particular insurance broker is proof of expanding the cooperation between banking and insurance.

REFERENCES 2020 Foresight: Bancassurance. Product Code: VR0896MR. March, 2013.

Brar, A., Singh, S. Bancassurance: A Study in relation to Total Income & Branch Network of Private Sector Banks in India. IOSR Journal of Business and Management (IOSR-JBM). 2016. e-ISSN: 2278-487X. Bulgarian National Bank, www.bnb.bg.

CEA Statistics N°39. Insurance Distribution Channels in Europe. March 2010. https://www.draudimas.com/allpics/distribution.pdf/.

Clipici, E., Bolovan, C. Bancassurance–main insurance distribution and sale channel in

Europe.

Scientific

Bulletin-Economic

Sciences,

2012.

http://economic.upit.ro/repec/pdf/2012_3_7.pdf/.

Code on Insurance. Promulgated in State Gazette isuue102 of 29 December 2015.

European bancassurance benchmark. Milliman. August, 2008.

European

Insurance

and

Occupational

Pensions

Authority

(EIOPA),

https://eiopa.europa.eu/.

European Insurance in Figures. 2016 data, https://www.insuranceeurope.eu/sites/default/files/attachments/WEB_Euro pean%20Insurance%20in%20Figures%20-%202016%20data.pdf, as of 28 February 2018/.

Financial Supervision Commission, www.fsc.bg Galabinov, R. 2015. Bancassurance in Bulgaria, National Bancassurance Conference, Chisinau, Moldova, https://www.slideshare.net/RoumenGalabinov/bancassuranceinbulgaria-1/, as of 03 March 2018.

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Gonulal, S., Goulder N., Lester R., Bancassurance—AValuable Tool for Developing Insurance in Emerging Markets, Policy Research Working Paper 6196, The World Bank, Financial and PrivateSector Development, Non-Bank Financial Institutions, September 2012, http://elibrary.worldbank.org/docserver/download/6196.pdf?expires=136177 7483&id=id&accname=guest&checksum=7AB7CB97A3E1DD09087F2C15498 5B218/.

Ordinance 2 of the BNB of 2000 on the Licenses, Approvals and Permissions Granted by the BNB (promulgated in State Gazette isuue 19 of 28 February 2003), http://www.bnb.bg/bnbweb/groups/public/documents/bnb_law/regulations _licenses_bg.pdf/, as of 16 April 2018.

Paneva, Đ?. Kompleksnite finansovi produkti zadovolyavat ochakvaniyata na klientite.

PIK. April, 2006.

Swiss Re, Bancassurance: A Survey of competition between banking and insurance, Sigma No. 2, Switzerland, 1992.

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Volume 4 Journal of Innovations and Sustainability

Number 2 2018

Microinsurance – Potential for Development in Bulgaria

Nikolay Ninov & Valentina Ninova* D. A. Tsenov Academy of Economics – Svishtov

Abstract According to the World Bank 1.5% of the Bulgarian population lives below $1.90 per day. For a population of Bulgaria as of 31st December 2014, comprising 7 202 198 people, this share covers approximately 108 032 people. At the same time, in relation to the implementation of social assistance activities, according to the Social Assistance Act (SAA) and the Regulation on the Implementation of the Social Assistance Act (RISAA), from the begging of 2014 until the end of December of the same year under the Regulation on the Implementation of the Social Assistance Act with one-of, targeted and monthly social benefits in the country, a total of 63 932 persons and families were supported. This fact demonstrates an alarming trend in particular that not a small number of people remain out of the coverage of the publicly organized social assistance system – approximately 44 100 people, who are not eligible for social benefits for various reasons. All this gives us reason to look for alternative solutions to improve social protection, especially to those being absolutely poor in our country. One of these alternatives, which is widespread in the world and unfortunately almost unknown in our country, is microinsurance. The latter has the potential to increase the social security of those who are in extreme poverty and to expand the activity of the insurance companies in Bulgaria.

Keywords: insurance, microinsurance, poverty.

*

Corresponding authors:

Assist. Prof. Valentina Ninova, Ph.D., E-mail: v.ninova@uni-svishtov.bg Assoc. Prof. Nikolay Blagoev Ninov, Ph.D., E-mail: n.ninov@uni-svishtov.bg

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INTRODUCTION The pursuit of social security in the context of the desired welfare is invariably related to the effectiveness of the existing in each society mechanisms for realization of the relations of distribution and redistribution of the produced product. Distinguished by its strong economic character, these relations have a bidirectional influence – to reduce or respectively to increase the process of social differentiation in society (in particular the differentiation in income and consumption). The consequences of this differentiation are the continuing deepening or overcoming of the differences in the individuals’ life situation – a process accompanied by their inclusion in separate social groups, which also emphasizes the social character of these relations.

The content of the distribution relationship is not limited to the above mentioned distribution and redistribution of the produced public product aimed at ensuring social welfare†. Distribution relationships also cover the distribution process of the ownership, of the material factors of production, of the elements of the living environment and others. The excessive concentration of resources in the hands of a small number of individuals, at the expense of everyone else results in life constraints and scarcity of the latter, although they are all part of an economic area and society.

Thus, as a result of the functioning of mechanisms for distribution and redistribution of the above mentioned resources, this proportions are observed. They are characterized by inability to fair and equitable implement these processes with regard to the participants, which inevitably leads to a deeper inequality (Spasov, 2000, p. 10). The latter, besides being accompanied by actions, which change the established structures of distribution relations, leads to a change in the initial socioeconomic positions of the individuals.

In this regard, the limitation or total absence of available resources also implies a narrowing of needs or insufficient level of their satisfaction. The state of a shortage of available resources, consisting of lack or reduced amount of an object, substance, moral quality and others, established in the process of comparison with a previous (or desirable) condition, where the good existed or abounded, is associated with the widespread understanding of poverty. Thus, the latter directly corresponds to the available life means of individuals (predetermined by the size of their current earnings, regardless of the source of acquisition) and their life needs. The reduction of available resources, to a greater extent and for a longer period, will result in more

†

Welfare – a calm and happy life in material security (Savremenen talkoven rechnik na balgarskiya

ezik s prilozheniya, ІІІ izdanie, Gaberov – EOOD, Abagar, V. Tarnovo, 1995, p. 50).

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serious consequences, especially in weaker economic positions, which will automatically lead to faster and more severe occurrence of poverty. Respectively, the better the economic positions and capabilities of individuals, including in the case of heavier unfavourable consequences of the emergence of risk, the slower and comparatively “lighter” will the poverty occur.

Such economic interpretation allows us to identify poverty with a permanently (stabilized) effectively manifesting state of insecurity of the individual, linked to difficulties in bearing and overcoming the adverse consequences of risks due to insufficiency of the available resource for personal and/or collective consumption.

The socio-economic development of Bulgaria after the begging of the 1989 reforms was aimed at social change and market reform. Unfortunately, they did not achieve the social, political, economic and social goals expected by the society but played the role of a catalyst for the process of stratification and polarization in Bulgarian society.

In this respect, a large part of the population significantly changed their standard of living in a negative direction, which result in its progressive impoverishment. This process has increased the interest in the study of poverty, while at the same time alerts the state and the civil society for an undelayable necessity to implement adequate policies to limit and eliminate it.

Fighting poverty, reducing unemployment and improving the living standards and quality of life of Bulgarian citizens are priorities of the social policy of each democratically elected government of the Republic of Bulgaria. The practice of implementing these priorities to date demonstrates the complexity of this process, which is not limited to the simple transfer of “ready” and already tested and considered “successful” foreign schemes and approaches. On the contrary, native social policy has its own Bulgarian aspect and character, which is a direct projection of the national traditions, conditions and priorities in the development of the Bulgarian society.

POVERTY IN BULGARIA Poverty in Bulgaria has its different aspects and dimensions. It integrates economic and social, spiritual and psychological problems, manifested on a micro level – individuals and households, on the group and community level, on macroeconomic and national level, and for five years – on a European scale. The development of a successful social policy (in the part preventive measures and anti-poverty policies) is

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associated with outlining profiles, clarifying causes and factors leading to poverty. It is precisely the detailed understanding of “the face of poverty” and the establishment of “nests of poverty” (concentrated in certain territories or social groups) that will allow the implementation of a package of measures and programmes for their removal.

The first studies of poverty in our country were carried out by the Ministry of Labour and Social Policy (MLSP), the National Statistical Institute (NSI), the Institute for Trade Union and Social Studies of the Confederation of Independent Trade Unions in Bulgaria (CITUP) and the World Bank. These studies can refer to the absolute approach to poverty research. At a later stage, even before its actual membership in the European Union, Bulgaria has made commitments in the fight against poverty by applying the adopted European mechanism for its study and counteraction. Part of this mechanism is the relative method of poverty monitoring adopted by Eurostat (http://www.nsi.bg/esdshd/eurostat), which became of particular importance after Bulgaria entered into negotiations for full membership in the European Union in 2000 and became a full member of the European union (1st January 2007).

In this respect, three approaches to measuring poverty have been applied in Bulgarian practice, namely:  The first approach defines the so-called “relative poverty”, which measures the proportion of people living much poorer than most people in a country (the approach is applied by Eurostat – the Statistical Office of the European Union). This approach is the basis of the annually defined poverty line. Its essence is expressed in the classification of the households by total net income per equivalent unit. For a poverty line, a certain percentage of the median equivalent income is assumed;  The second approach called “subjective poverty line” is based on representative sociological researches which examine the opinion of individuals in society about the minimum needed funds for their own existence. This is made possible in practice through standard questions that define the subjective poverty line and which are most often of the type: “What level of income do you consider necessary to meet your living needs?”, “Do you consider that your household’s income is above, at or below average for the country?” etc. Answers to these questions are presented after being transformed into quantitative information about the subjective level of the poverty line. In practice, it is a function of the income of the respondents involved in the study. Typically, poorer people point to a lower subjective poverty line, while richer groups point higher one.

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

The third approach measures the proportion of the population with income under

the so-called “absolute poverty line” in a national or comparable international currency. For this purpose, since 1990 parity dollars have been used, through which the international community defines a line of extreme poverty (corrected for different price levels) in absolute values of $1 PPP per day (PPP - purchasing power parity). In 2008, the World Bank, applying this method, revised the amount to $1.25 purchasing power parity and since 2015, it has been $1.90 purchasing power parity per day.

Table 1. Poverty headcount ratio at $1.90 a day % of population in EU-28 Member States (PPP within the period of 2006-2014)

Source: https://data.worldbank.org/indicator/SI.POV.DDAY

It is in the context of the third approach, to measure absolute poverty that the World Bank data show that the number of people in the world living in extreme poverty has fallen by half from 1990 to 2014 (the latest published data on poverty) when

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1.9 billion people lived under $1.90 per day, compared with 836 million in 2015 (http://www.worldbank.org/en/topic/poverty).

The specific data for EU-28 within the period of 2006-2014 outline the following trends:  Countries such as Germany, the Netherlands, France, Luxembourg, Belgium, Slovenia, Cyprus, Malta, Poland and others report zero values for this indicator throughout the entire period. The lack of extreme poor people in those countries, living below $1.90 per day is dictated by the high competitiveness of their economy, measured by labour costs (depending on productivity), the stability of government finances (through particular attention to government debt), and the maintained mandatory minimum level of investment in science, education and infrastructure  North European countries maintain zero or near zero values during the period 2006-2014 while Southern European Union countries, including Portugal, Spain and Greece, report an increase in the share of the population living below $1.90 per day, which is explained by their large government debts and budget deficits.  The data for 2014 show that the highest share of the population of 1.5%, living below $1.90 per day is in Bulgaria and Greece, followed by Italy and Lithuania – 1.2% and Croatia – 1%.

6

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2

1,2

1,2

2008

2009

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1,7 1,5

1 0 2006

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2010

2011

2012

2013

2014

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Figure 1. Poverty headcount ratio at $1.90 a day in Bulgaria Share of the population living under $1.90 per day in Bulgaria (% of population) PPP within the period of 2006-2014 Source: https://data.worldbank.org/indicator/SI.POV.DDAY?end=2014&locations=BG&start=2006

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Unlike the other EU-28 countries, Bulgaria demonstrates remarkable progress in terms of the share of the population living below $1.90 per day in the direction of limiting the number of people forming this share. Analysis of the data shows that from 5.5% of the population living below $1.90 per day in 2006, this share sharply declined to 1.7% in 2007 followed by a contraction to 1.9% in 2008 and 2009. There was a further increase in this number, and their share reached 2% in 2010, 2.2% in 2011 and again 2% in 2012, which is explained by the growing global economic crisis and its consequences on our country. The subsequent economic recovery, which continues until now, has lowered the share of the population living below $1.90 per day, from 1.7% in 2013 to 1.5% in 2014. According to the World Bank analysts (https://www.manager.bg/), these results are due to the stronger growth in the economy and the improved labour market conditions that have significantly contributed to reducing poverty in the country. The World Bank predicts that Bulgaria’s economic growth for 2018 will slow to 3.1%, despite the fact that household consumption continues to grow and private investment should compensate for a sharp decline in EU-funded state investment. The main challenge for Bulgaria remains the question of the accelerated following of the other European Union members and dealing primarily with the effects of demographic changes. This automatically implies an increase in productivity and the commitment of the workforce. The productivity growth in our country should reach at least 4% per year in order to follow the average income level in the European Union within one generation.

It would be presumed that the people making up the 1.5% share of the country’s population because of their low disposable income or the absence of such should be covered by the public social assistance system or, at the very least, be subject of support provided by non-governmental and charitable structures and organisations.

Unfortunately, statistics show the opposite. The calculations show that for 1.5% of the population living under $1.90 per day, in a population as of 31 December 2014, numbering 7 202 198 people, this share covers approximately 108 032 people. At the same time, in relation to the implementation of the social assistance activities, according to the Social Assistance Act (SAA) and the Regulation on the Implementation of the Social Assistance Act (RISAA), the Social Assistance Agency monthly receives data from the Social Assistance Directorates through the Regional Social Assistance Directorates in the country from the begging of 2014 until the end of December of the same year under the Regulation on the Implementation of the

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Social Assistance Act with one-of, targeted and monthly social benefits in the country were supported a total of 63 932 persons and families (Activity report of the Social Assistance Agency for 2014). This fact demonstrates an alarming trend in particular that there are not a small number of people out of the coverage of the publicly organized social assistance system – approximately 44 100 people who are not eligible for social benefits for various reasons. All this gives us reason to look for alternative solutions to improve social protection, especially to the absolutely poor in our country, whose profile is most often characterized by a lack (or low availability) of education, absence of any kind of labour employment and professional experience, availability of housing and sheltered life etc. and to ensure their social security.

DEVELOPMENT OF MICROINSURANCE IN BULGARIA Insurance is an activity whereby insurance companies gather funds from individuals and legal entities in the form of insurance premiums. As a result, insurers provide coverage during the period of insurance policy. When a certain risk occurs, they make a payment in the form of an insurance indemnity or sum insured (depending on the insurance branch). Insurance can also be defined as: “An economically justifiable method based on the idea of mutual assistance to compensate losses suffered by the entities through the formation, organization, management and distribution of the insurance fund” (Erusalimov et al., 2015, p. 20).

Microinsurance is a part of the insurance activity and as such it is implemented by the conclusion of insurance policy between insurer and insured. The same is done by observing the generally accepted insurance principles and rules but it is aimed at covering the needs of those who are deprived of the possibility to access to basic insurance policies. In its range are people with low income. In this case, in order to have coverage of these risks, the insured persons pay insurance premiums.

As a specific economic activity, microinsurance has a number of peculiarities that distinguished it from other types of insurance (Tan, 2012, p. 3):  the amounts of sums insured are smaller and the insurance premiums are lower – the basic principle in the insurance activity is the principle of mutual assistance, which is also fundamental for microinsurance. On the one hand, the pursuit of an activity aimed at financially compensating for occasional loss for low-income people is even noble. On the other hand, this activity also has a price – the insurance premiums and this is another additional cost to the complicated financial situation of that group of persons. One of the basic amounts, when determining the insurance

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premium, is the amount of the sum insured. Therefore, the sum insured here is lower than the basic insurance, and hence the amount of insurance premium will also be lower, respectively more bearable for the persons;  the target group of this type of insurance includes people with low incomes – in the case of microinsurance, the insurance company offers financial protection to both individual and legal persons as well as to households and whole communities. One of the basic conditions for inclusion of the persons in the insurance pool is that they have low incomes. These people may be affected by sudden events that have a negative financial result which overcoming is impossible for them. People affected by the risk may be in a situation of unexpectedly sharp decrease of income (“income shock”);  the products offered in most cases provide only one type of cover – microinsurance is targeted at certain risks – related to the life and health of the person, to the credit, etc.;  an opportunity for greater flexibility both in product creation and in insurance premiums. Due to the irregular flow of customer income, the insurance policy provides for premium payments to be made irregularly and in different amounts;  the request process is faster and less complex, with considerably less documentation. As a result, claims are usually executed within shorter terms compare to most insurance claims, which must go through a rigorous process of risk assessment;  the signing of the insurance contract is a process where there are fewer requirements for insurance candidates. The basic reason for this is mainly due to the relatively small sums insured, provided for the conclusion of insurance policy for microinsurance.

After clarifying the peculiarities of microinsurance as a part of the insurance activity, in order to answer the question “Is there potential for the development of microinsurance in Bulgaria?” we need to present its positive and negative aspects.

Microinsurance is not without deficiencies. Its weaknesses are in the following directions:  low awareness of the persons targeted by microinsurance – lack of awareness of the low-income people about the insurance products that are provided for them. Even in the case of awareness of Bulgarian citizens who can benefit from this type of insurance, if they need additional funds, they would prefer other traditional ways of

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financing (e.g. credit, including a fast credit). The reason for this lies in the still low insurance culture of the people in Bulgaria;  difficulties on the part of insurers offering microinsurance to reach potential insured persons combined with high administrative costs. Overcoming this disadvantage is possible through the conclusion of group insurance policy (suitable for applying also to the insurance of whole communities of the population). Thus, the insurer’s administrative costs can be reduced;  the other disadvantage is due to the lack of qualitative data on population – potential users of the insurance. This leads to the difficulty of risk assessment. That is why the necessary data for insurers must be generated.

Overcoming the shortcomings of microinsurance will help insurance products to be more attractive and competitive with other traditional methods of financing lowincome people.

Besides weaknesses microinsurance also has its positive sides, among which are:  through the conclusion of microinsurance contracts, social protection of low income people could be provided – in most cases, these peope are not covered by publicly-organized social assistance systems or other forms of social protection;  these persons have the possibility to receive financial compensation in the case of insurance event occurring. The extraordinary expenses related to risk will be covered by the insurance companies;  insurance companies have the opportunity to expand their business by offering insurance products that are targeted at low-income people. The insurers will be able to include insured persons who cannot take out basic insurance policy.

In the world microinsurance is mostly applied in developing countries, mainly in Asia, Africa and Latin America, where the share of people living below $1.90 purchasing power parity (PPP) is the largest.

Despite the positive trends taking into account the indicator for people living below $1.90 purchasing power parity in Bulgaria – from 5.5% in 2006 to 1.5% of population in 2014, in Bulgaria there are still some 110 000 Bulgarian citizens who live with low income. These are the people to whom Bulgarian insurance companies may also offer specific insurance products. The inclusion of insurance activity as a means of compensating these people has the following positive aspects:  the share of Bulgarian citizens who live in the conditions of extreme (absolute) poverty, including those who are not covered by publicly-organized social assistance systems, have the opportunity to receive financial compensation in the occurrence of

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risk. In this way, those affected by the risks will have the chance to avoid the “poverty trap”;  a new niche for the development of the insurance business emerges in front of Bulgarian insurance companies. Although people with low incomes remain outside the insurance pool under basic insurance, insurers working in Bulgaria will be able to attract new insured people. This could be achieved by insurers applying flexibility and adaptability to insurance products in order to meet the needs of those people;  as an economic activity, microinsurance can contribute to the integration of lowincome people into society, thus ensuring a higher level of social security.

CONCLUSION Worldwide, fighting poverty as well as reducing unemployment, improving living standards and improving the quality of life of citizens are priorities. One of the approaches to measuring poverty is through the share of the population with income under the so-called “absolute poverty line” in a national or comparable international currency for which the international community sets a line of extreme poverty (adjusted for different price levels) in absolute values of $1 PPP per day. Since 2015 it has been $1.90 PPP per day.

The analysis of data presented by the World Bank shows that Bulgaria has made remarkable progress in terms of the share of the population living under $ 1.90 per day in the attempt to limit the percentage of people who make up this share. However, 1.5% of Bulgarian citizens live with low incomes. This creates conditions for seeking alternatives for the implementation of economic and social activities aimed either at raising their living standard or in helping to overcome unforeseen extra costs for these persons.

One of the roles of the insurance activity is aimed at preserving the economic condition of the insured after the risk occurrence. The insurer assumes responsibility for reimbursement of incidental costs made by the insured. Microinsurance is not exception to this rule. Its peculiarity is rooted in its target group – people with low income who are in extreme poverty. As a specific economic activity, it can help to overcome the extraordinary financial costs that results from the occurrence of insurance events. Thus, those who live with less than $1.90 per day in Bulgaria will be protected (financially, with the responsibility of insurers), which will improve their level of social security and the Bulgarian insurance companies will have opportunity to expand their business.

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REFERENCES Activity report of the Social Assistance Agency for 2014, http://www.asp.government.bg/documents/20181/20931/GODISHEN_OTCH ET_ASP_2014.pdf/fed3fd3e-48fd-4c5b-be2d-3a3fc86731b1/.

Bulgarian association of credit cooperatives and organizations for microfinance, http://baccom.eu/.

Erusalimov, R., Vasilev, V., Paneva, A., Mitkov, M., Ninova, V. Vavedenie v zastrahovaneto. Veliko Tarnovo, 2015.

Manager.News, https://www.manager.bg/biznes/svetovnata-bankaikonomicheskiyat-rastezh-v-blgariya-shche-se-zabavi/.

Microinsurance - the only insurance choice in developing countries. Bulgarian Association

of

Insurance

Brokers,

http://baib.bg/mikrozastrahovaneto-

edinstveniyat-zastrahovatelen-izbor-v-razvivashtite-se-strani/.

MicroInsurance Centre at Milliman, http://www.microinsurancecentre.org/.

National statistical institute of the Republic of Bulgaria, http://www.nsi.bg/esdshd/eurostat/.

Ninov, N. Efektivnost na sistemata za sotsialno podpomagane v Balgariya chrez planirane izpolzvaneto na evroresursite". Ikonomika 21, 2015, issue 2, p. 81-92.

Ninov, N. Dalgosrochnite sotsialni grizhi v Republika Balgariya - sastoyanie, problemi i perspektivi. Svishtov, 2013.

Ninov, N. Neobhodimostta ot aktivno protivodeystvie na bednostta v Balgariya predpostavka

za

revizirane

na

rezhima

na

sistemata

za

sotsialno

podpomagane.// Biznes upravlenie, 2010, issue 4, p. 73-92.

Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population). World Bank, Development Research Group, https://data.worldbank.org/indicator/SI.POV.DDAY Savremenen talkoven rechnik na balgarskiya ezik s prilozheniya, ІІІ edition, Gaberov EOOD, Abagar, V. Tarnovo, 1995.

Spasov, K. Upravlenie na personala. Sotsialna politika. Sofia, ET ”Personal – GRH”, 2000.

Tan, V., Allen & Overy LLP. Microinsurance. Advocates for International Development, 2012.

The World Bank: Understanding poverty, http://www.worldbank.org/en/topic/poverty/.

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Volume 4 Journal of Innovations and Sustainability

Number 2 2018

Improving the Internal Auditing Procedure by Using SIPOC Diagrams

Tzvetelin Gueorguiev1 Angel Kanchev University of Ruse, Ruse, Bulgaria

Abstract Auditing is intended to provide a better understanding of a system and to provide insights on the possibilities for improvement. The University of Ruse has implemented a management system in compliance with ISO 9001 since 2004. Thus, for more than a dozen of years it has experience in auditing its management system – both by internal and external audits. In 2017 ISO has published the draft standard ISO / DIS 21001 that defines the requirements for a quality management system of any type of educational organization. This article presents a proposal for improvement of the current internal auditing procedure.

Keywords: audit, SIPOC, Educational Organization Management System, EOMS, ISO 19011, ISO 21001.

INTRODUCTION The international standardization in the field of quality management systems (QMS) is a success story of more than 30 years. The standard with requirements for quality management - ISO 9001 (ISO 9001, 2015) is applicable to organizations of any size, industry sector or country. The degree of conformity to the requirements of management systems’ standards is assessed by audits. The self-assessment of the

1

Corresponding authors: Principal Assistant Eng. Tzvetelin Gueorguiev, Ph.D.

E-mail: tzgeorgiev@uni-ruse.bg

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QMS is called an internal audit, or a first party audit. The external audits could be second party audits which are usually performed by customers, and third party audits done by independent bodies, normally certification and re-certification audits.

ISO 19011 is the international standard for auditing management systems (ISO 19011, 2011). It is applicable to all organizations that need to conduct internal or external audits of management systems or manage an audit program. According to Denise Robitaille (Naden, 2017), Chair of ISO/PC 302, the ISO project committee responsible for the revision, “There are now MSSs that cover areas such as health and medical, environment, services, information technology and more. In addition, the two most popular MSSs – ISO 9001 and ISO 14001 – have recently been updated, so the auditing of these systems needs to reflect the variety and number of standards being developed”.

In the end of January 2018 the Final Draft International Standard of ISO 19011 is registered for approval by ISO. The third edition of the standard is expected to be issued in the middle of 2018.

The University of Ruse has established, implemented and continually improves its internal quality management system. The first quality manual dates back to 2004. It was the result of the efforts of a team of internal experts who were helped by other partner universities. A project (Zhelezarov, 2003) and several other publications (Zhelezarov, 2001a, 2001b) by Prof. Zhelezarov from the Technical University in Gabrovo have facilitated the successful start of the system.

GENERAL LAYOUT OF THE RESEARCH This research is the result from considering several scientific methods for quality management, and aligning them with the requirements from a number of sources.

The main requirements for the higher education institutions (HEI) in Bulgaria are mandated and controlled by the Ministry of Education and Science. Some of the laws (Ministry of Education and Science, 2018) that define the operation of universities are: - The Law of Higher Education (LHE) (with latest update as of 1 January 2017); - The Law for Promoting Scientific Research (with latest update as of 18 July 2017); - The Law for Development of the Academic Staff (with latest update as of 2 August 2013); - The Law for Crediting Students and PhD Students (with latest update as of 1 January 2015), etc.

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Article 6 of the LHE requires the universities to have an internal system for assessment and maintenance of the quality of education and the academic staff. This seemingly easy task remains a challenge to the development of Bulgarian HEI. This is one of the findings in the paper (Terziev, 2017) who sees “Weaknesses in the implementation of internal quality management systems” as an obstacle for achieving compatibility with European higher education systems.

In its Art. 11, the LHE defines the National Evaluation and Accreditation Agency (NEAA) as a specialized governmental body at the Council of Ministers which shall ‘perform quality assessments, control and accreditation’. The NEAA monitors the ability of institutions, their main units and branches to provide high quality of education and scientific research through an internal quality assurance system (NEAA, 2018). Articles 32, 73, 75, 77, 78, 79, 83, 85, 88 and 91 also add to the intended profile of a QMS of a HEI. More specifically, Art. 78 requires that for a successful accreditation each HEI must demonstrate how it ‘manages the quality of education’. Art. 79 allows partnerships with foreign HEI only if they are accredited by an agency which is a member of the European Association for Quality Assurance in Higher Education (ENQA), and/or are listed in the European Quality Assurance Register for Higher Education (EQAR).

Being a member of the European Union, Bulgaria has to meet the Standards and Guidelines for Quality Assurance in the European Higher Education Area (ESG, 2015). This has become reality by the adoption of ESG as a system of criteria of the NEAA. The ESG defines standards and guidelines in the following 3 sets: - 10 Standards for internal quality assurance; - 7 Standards for external quality assurance; - 7 Standards for quality assurance agencies.

The internal auditing reflects standards 1.9 and 1.10 of the ESG standards for internal quality assurance.

When it comes to the international standards for quality management systems, such as ISO 9001, HEI have tried for years to adapt the more general ideas to the realm of education. The forerunner was the International Workshop Agreement (IWA) approved in Mexico in October 2002 and published as IWA 2:2003. The purpose of this agreement to assure the overall effectiveness of the quality management system of an educational institution was confirmed 4 years later with the second edition IWA 2, 2007.

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After the revision of IWA2:2007, in 2017 ISO has published a Draft International Standard ISO/DIS 21001 “Educational organizations — Management systems for educational organizations — Requirements with guidance for use”. As of January 2018, this standard has moved to the Final Draft stage (FDIS, 2018).

PROBLEM AREAS AND KEY CHALLENGES The current version of the Quality Manual of the University of Ruse has been approved in February 2012. Thus, it meets only those requirements of ISO 9001:2015 which have remained unchanged from its 2008 edition. The quality professionals are well aware that the fifth edition of ISO 9001 has introduced a different structure based on Annex SL of the ISO Directives, ideas like context of the organization and risk-based thinking, greater focus on services and relevant interested parties, etc.

The second version of the documented procedure also dates back to 2012. It is 10 pages long, including 5 annexes. The procedure is written in a descriptive manner which makes it easy to understand. But in fact one of the key challenges is that some of the requirements fail to achieve a smooth and complete flow of information.

This paper proposes to use the Suppliers-Inputs-Process-Outputs-Customers (SIPOC) diagram as a tool to improve the current internal auditing procedure.

IMPROVING THE INTERNAL AUDITING PROCEDURE The structure of the current procedure for internal audits follows the elements recommended in ISO/TR 10013:2001 Guidelines for quality management system documentation. Since this standard in significantly older than ISO 9001:2015, it doesn’t reflect the most recent development of QMS. It is proposed that the improved procedure follows the structure listed below: 1. Purpose- defined based on the requirements of ISO 9001:2015 and in the case of the University of Ruse, the specific requirements of ISO/FDIS 21001:2018. The criteria for defining the purpose are those for the so called SMART goals- specific, measurable, attainable, relevant and timely.

2. Context of the process- it includes the process owner and his deputy, the internal and external interested parties, the process interaction network and the turtle diagram of the process.

3. Documented information- documents, forms and quality records of internal and external origin.

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4. Description of the process- the SIPOC diagram of the internal auditing process, described below.

5. Improvement of the process- the forms that are to be completed are provided as annexes; a commitment to review the procedure at least once per year, and update it as necessary; listing actions to address risks and opportunities.

The SIPOC diagram is a tool used in Total Quality Management (TQM) and in Six Sigma projects. It closely resembles the logic of supply chain management but is adapted to the QMS processes of the organization. The description of the process can be done from right to left, or from left to right. If one starts from the right hand side, the following elements should be completed: - Suppliers - which employee of the organization or which external party is needed to support the implementation of the process by providing resources (material inputs and/or information) to the process owner; - Inputs - the documented information which is necessary to manage the process; - Process steps - the requirements of the standard (ESG, ISO 9001, ISO 21001, etc.) are listed and arranged in logical order. Then they are compared to the activities which are applied in the process according to the internal process of the organization.

Next, the process flowchart is drawn based on the combined list of requirements and activities; - Outputs - the quality records and the results achieved as a result of the process step; - Customers - similar to the ‘Suppliers’, they can be both internal and external. This last segment of the SIPOC lists the employees or other interested parties who are informed about the results achieved and/or who expect them in order to begin an activity or a process of their own.

Another approach to creating the SIPOC diagram is reversing its order, i.e. COPIS. It is a Lean influence or the so called ‘pull’ system where one begins with the customers, define what result (output) is expected, what process steps are necessary to achieve this result, what resources (inputs) are needed for the given process element, and who to obtain them from (supplier).

The development of the process continues with listing the ISO 21 001 requirements.

The requirements in the standard are listed below: 1) The organization shall perform internal audits at planned intervals to provide information whether the EOMS conforms to the organization’s own requirements for its management system and the requirements of ISO 21001;

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2) The organization shall perform internal audits at planned intervals to provide information whether the EOMS is effectively implemented and maintained.

3) The organization shall plan, establish, implement and maintain an audit program, including the frequency, methods, responsibilities, planning requirements and reporting, which shall take into consideration the EOMS's objectives, the importance of the processes concerned, feedback from relevant interested parties, and the outcomes of previous audits; 4) The organization shall define the audit criteria and scope for each audit; 5) The organization shall select auditors to ensure objectivity and the impartiality of the audit process. Auditors shall not audit their own work; 6) The organization shall conduct audits to ensure objectivity and the impartiality of the audit process; 7) The organization shall ensure that the results of the audits are reported to relevant management; 8) The organization shall identify opportunities for improvement; 9) The organization shall take appropriate correction and corrective actions without undue delay; 10) The organization shall retain documented information as evidence of the planning, implementation of the audit program and the audit outcomes.

Before creating the flowchart of the internal auditing process, the abovementioned requirements need to be reviewed for duplicates or if multiple actions are listed in one sentence. Therefore, requirement 3 consists of 4 verbs: plan, establish, implement and maintain. They need to be separated in individual process steps. In the same time, requirements 1, 2 and 6 can be merged because they all mean the actual implementation of an internal audit, only using different verbs- perform and conduct.

Based on the resulting list, the flowchart of the internal auditing process is created.

Then it is inserted in the middle section of the SIPOC Diagram (see Table 1).

Table 1. SIPOC diagram of the internal auditing process Suppliers Quality manager, Quality inspector, Secretary, Lawyer Quality manager, Quality

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Inputs

Process steps

Outputs

International and national normative documents; QMS

Audit program

Normative documents; QMS

Audit plan

Customers Quality manager, Quality inspector, Dean of Faculty Lead auditor

ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line) Suppliers inspector, Lawyer Quality manager, Quality inspector, Dean of Faculty Quality manager, Quality inspector, Dean of Faculty, Lawyer Quality manager, Lead auditor, HR

Inputs

Outputs

Customers

Audit program

Quality manager, Quality inspector, Dean of Faculty

Normative documents; Nonconformity report, Corrective and preventive actions

Audit program

Quality manager, Quality inspector, Dean of Faculty

Auditor certificates, Audit plan

Audit plan; Order/ Mandate

Lead auditor, auditors, Dean of faculty

Nonconformity report, Corrective and preventive actions

Process steps

NEAA report, Audit report, Audit plan, QMS, audit questionnaires Audit report, Audit questionnaires, Recommendations for improvement, Nonconformity report, Corrective and preventive action request Audit report, Recommendations for improvement, Nonconformity report, Corrective and preventive action request

Quality manager, Lead auditor

Lead auditor, auditors, Dean of faculty

Audit program

Lead auditor, auditors, Dean of faculty; Inspector in the Faculty/ Department

Normative documents; NEAA report, Audit report, Audit plan, QMS, Audit questionnaires

Lead auditor, auditors

Audit report, Recommendations for improvement, Nonconformity report, Corrective and preventive action request

Rector, Dean of faculty

Audit report, Corrective and preventive action request

Corrective and preventive action report

Lead auditor, auditors, Quality manager, Quality inspector

Rector, Dean of faculty

Suggestions, Nonconformity report, Corrective and

Register of risks and opportunities, Action Plan

All relevant interested parties

Rector, Dean of faculty, Quality manager, Quality inspector, Lead auditor, auditors

Rector, Dean of faculty, Quality manager, Quality inspector

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Journal of Innovations and Sustainability (2018) Vol. 4, No 2

Suppliers

Lead auditor, auditors

Rector, Dean of faculty, Quality manager, Quality inspector, Lead auditor, auditors

Inputs preventive action request Audit program, Audit plan, Audit questionnaires, Audit report, Suggestions, Nonconformity report, Corrective and preventive action request, Register of risks and opportunities, Action Plan

Process steps

Audit program, proposal for updating the audit program

Outputs

Customers

Audit file (containing all inputs of A4 in the form of paper documents and/or digital archives)

Quality manager, Quality inspector

Audit program (updated)

Quality manager, Quality inspector, Lead auditor

CONCLUSION The SIPOC diagram (Table 1) presents the updated and improved sequence of process steps and information flow. It is based on the most recent statutory and regulatory requirements, the system of criteria and guidelines of the ESG and the NEAA, and the requirements of ISO 9001:2015 and ISO/FDIS 21001:2018.

The SIPOC model has been used as a gap analysis tool to uncover the deficiencies in the process description. The improved internal auditing procedure has been approved by the Quality Manager of the University of Ruse and is proposed to be adopted by the Quality Council.

REFERENCES ESG. (2015). Standards and Guidelines for Quality Assurance in the European Higher Education Area (ESG). http://www.enqa.eu/wpcontent/uploads/2015/11/ESG_2015.pdf/.

ISO 9001. (2015). Quality management systems – Requirements.

ISO 19011. (2011). Guidelines for auditing management systems.

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ISSN 2367-8127 (CD-ROM) ISSN 2367-8151 (on-line)

ISO/FDIS 21001. (2018). Educational organizations – Management systems for educational organizations – Requirements with guidance for use.

Ministry of Education and Science (MES). (2018). Laws. https://www.mon.bg/?go=page&pageId=7&subpageId=57/.

Naden, C. (2017). Taking auditing to new level with International Standard under revision. https://www.iso.org/news/2017/01/Ref2149.html/.

National Evaluation and Accreditation Agency (NEAA). (2018). Criteria and procedures. https://www.neaa.government.bg/en/pamc/criteria-andprocedures/.

Terziev, V, N. Nichev, P, Bogdanov. (2017). Prospects for development of higher education in Bulgaria. International E-Journal of Advances in Education, Vol. III, Issue 9, December 2017, pp. 438 - 449.

Zhelezarov, I. S. (2001a). A system for assurance and management of the quality of education. AMTECH 2001. Sozopol. 2001. Vol. 4, pp. 83 - 88.

Zhelezarov, I. S. (2001b). The quality management system of TU - Gabrovo.

Proceedings from the ХІІ-th scientific and practical national conference with international participation ‘Quality- for better life ’2001’. Sofia 2001, pp. 76-81.

Zhelezarov, I. S. (2003). Documenting the information of the universities’ quality management systems. Informational bulletin 1. Project ‘Improving the universities’ systems for quality management if education. Ruse. 2003. pp. 82-110. ISBN 954-712-211-8.

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Journal of Innovations and Sustainability Volume 4, Number 2, 2018

Social sciences

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