The development of internal auditing at the Central Bank of Malta : a study

Abstract

PURPOSE: The main objectives of the study are to assess how the operational structure of the IAF at the CBM has developed over the years, to assess how the different exercises carried out by the IAF have changed since the inception of the Bank, and to examine how the approach to such different exercises has also changed over the years. DESIGN: This study adopted a qualitative mixed-method approach to ascertain the achievement of these objectives. Semi-structured interviews were carried out with six participants encompassing both current and ex-IAF employees in various hierarchical positions. These were then backed up by an analysis of the CBM Annual Reports and any available unpublished internal audit documentation. FINDINGS: The findings indicate that the objectives of the IAF have remained mostly unchanged over the years except for being broadened to enhance organisational value. Furthermore, stakeholder perceptions of the Function improved from being negative and invasive to being generally respectful. Notably, audits had to decrease in number over the years as most audits had become weightier, laborious, and time-consuming. Staff turnover started to decrease when more emphasis was placed on staff development and training. Moreover, over time quality increased significantly, with more focus being placed on objectivity, integrity, qualifications, and other competencies. Audit exercises have varied and widened in scope, with the Function evolving from one only carrying out checks of detailed transactions to one providing well-planned assurance/consultancy services. Also, the introduction and later refinement of risk-based auditing transformed the audit approach from a closed one to one which is open, transparent, and more democratic. CONCLUSIONS: This study concludes that the IAF has gone through notable advancements in various stages over the last twenty years, mainly in terms of its operational structure, internal audit exercises and internal audit approach. In particular, the historical milestones identified as spurring such stages may also be found relevant in the future development of the IAF. IMPLICATIONS: This study raises awareness on the developmental stages the IAF at the CBM had to go through to become an appreciated and value-adding function. It is hoped that the recommendations provided allow the function to improve further and develop so that it can enhance its importance within the CBM. Furthermore, the vicissitudes of the IAF history, to date, may also serve to help the IAFs of other financial institutions.