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Key Function 4: Setting internal control and managing risk Box 2.10. The SAI of Portugal – strengthening controls in state owned enterprises Objective Portugal’s SAI, the Tribunal de Contas (TCU), assessed the internal audit function within state owned enterprises for the year 2008, with a view to strengthening overall governance of the selected entities.
Type Performance audit, guidance.
Scope and methodology Looking at 20 state owned enterprises, the performance audit sought to: evaluate the internal audit function in public sector enterprises, compare it to international best practices, and assess the influence of governance models of entities on the effectiveness of the internal audit function.
Criteria Country laws and regulations, government wide indicators, public sector entities’ objectives/indicators, foreign laws and regulations, standards/guidance from international organisations.
Resources Four auditors (managers and economists) and over 300 man-hours.
Outcomes Of the 20 entities that were involved in the audit and that responded to the survey, 16 reported having an internal audit unit, and others expressed their intent to establish one. Of the 16 with an internal audit unit, only 5 were aware of, and applied, the full breadth of internal audit concepts. Half of the entities’ internal audit units reported to the board, although some boards did not include non-executive members, which risked compromising the independence of the internal audit function. The Tribunal de Contas quantified the costs of the surveyed companies at 15.9 million euros. Given the costs involved, the Tribunal recognised that there was room for valuefor-money to be integrated into the function. The Court recommended that the companies’ boards of directors revived the internal audit function and provided the necessary skills for it to play a significant role in evaluating the effectiveness of risk management and control and governance. It identified the Institute of Internal Auditors’ internationally recognised principles as guidance for the company boards to follow.
Good practices used Following the audit, principles of good governance applicable to state-owned enterprises were integrated in a legal diploma (Decree Law 133/2013 of 3 October). In 2014, a Code of Corporate Governance (article 229 of Código dos Valores Mobiliários) was issued, requiring that all entities belonging to the public enterprise sector have a benchmark of good governance, regardless of their scope.
Lessons learned This was an innovative approach adopted by Portugal’s SAI as only a few companies had addressed this issue at the time of the audit. Through a cross-sectional evaluation of the internal audit function in public sector enterprises, this audit enabled the Tribunal to synthesise information and guidance in order to inform the government of the effectiveness of internal controls in state owned enterprises.
Further reading www.tcontas.pt/en/reports/audit_report_08-2011-2s_abstract.pdf. Source: OECD Survey of Peer Supreme Audit Institutions; further reading links above.
SUPREME AUDIT INSTITUTIONS AND GOOD GOVERNANCE: OVERSIGHT, INSIGHT AND FORESIGHT © OECD 2016
