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EVALUATION OF INTERNAL AUDIT UNIT’S ATTRIBUTE AND PERFORMANCE AT
PT GAMA MULTI USAHA MANDIRI
Abstract The existence of internal audit is certainly needed for developing organizations that increased in operational complexity. Especially for holding companies such as PT Gama Multi Usaha Mandiri which is engaged in various business sectors. It really needs the existence of internal audit to assist the Board of Directors in monitoring the activities of business units and subsidiaries. Because the existence of internal audit at PT Gama Multi Usaha Mandiri has only been running structurally since April 2017, an evaluation of the suitability of attributes and performance compared to standards must certainly be carried out. The aim is to evaluate and analyze the causes if there is a discrepancy with the standard, thus relevant improvement efforts can be determined. The standard commonly used by organizations around the world regarding internal audit implementation is the International Standards for the Professional Practice of Internal Auditing by the IIA. This research is a qualitative research with a case study approach that collects data through document analysis, in-depth interviews, and observations. The evaluation results indicate that the attributes and performance of the internal audit unit are partially in accordance with the standards. There are some shortcomings in the implementation of its practices that are considered to deviate from the standard, but these shortcomings do not hinder the internal audit activity in carrying out its responsibilities. These deficiencies are caused by the absence of direct communication access to the Board of Commissioners, the absence of education and training for internal audit unit personnel, and the absence of discussion and ratification of the internal audit charter. However in general, the level of partial conformity is sufficient for the internal audit unit at PT Gama Multi Usaha Mandiri, which has only been formed for approximately one year. Keywords: Attribute, Performance, The Institute of Internal Auditors, the International Standards for the Professional Practice of Internal Auditing Abstrak Keberadaan audit internal tentu sangat dibutuhkan bagi organisasi-organisasi berkembang yang mengalami peningkatan kompleksitas operasional. Terlebih bagi holding company seperti PT Gama Multi Usaha Mandiri yang bergerak diberbagai sektor usaha. Sehingga sangat membutuhkan keberadaan audit internal guna membantu direksi dalam melakukan pemantauan terhadap aktivitas unit usaha dan anak perusahaan. Oleh karena keberadaan audit internal pada PT Gama Multi Usaha Mandiri ini baru berjalan secara struktural sejak April 2017, maka evaluasi kesesuaian atribut dan kinerja dibandingkan dengan standar tentu harus dilakukan. Tujuannya ialah mengevaluasi serta menganalisis penyebab apabila terdapat ketidaksesuaian dengan standar sehingga dapat ditentukan upaya perbaikan yang relevan untuk dilakukan. Standar yang umum digunakan oleh organisasi di seluruh dunia terkait implementasi audit internal ialah Standar Internasional Praktik Profesional Audit Internal oleh IIA. Penelitian ini
merupakan penelitian kualitatif dengan pendekatan studi kasus yang melakukan pengumpulan data melalui analisis dokumen, wawancara mendalam, dan observasi. Hasil evaluasi menun- jukkan bahwa atribut dan kinerja satuan audit internal secara parsial telah sesuai dengan standar. Terdapat beberapa kekurangan dalam pelaksanaan praktiknya yang dinilai menyim-pang dari standar, namun kekurangan tersebut tidak menghalangi aktivitas audit internal dalam melaksanakan tanggung jawabnya. Kekurangan tersebut disebabkan oleh belum adanya akses komunikasi langsung kepada Dewan Komisaris, belum dilakukannya pendidikan dan pelatihan bagi personel satuan audit internal, dan belum adanya pembahasan serta pengesahan piagam audit internal. Namun secara keseluruhan, tingkat kesesuaian secara parsial tersebut sudah cukup memadai bagi satuan audit internal pada PT Gama Multi Usaha Mandiri yang baru terbentuk kurang lebih selama satu tahun. Kata Kunci: Atribut, Kinerja, IIA, Standar Internasional Praktik Profesional Audit Internal INTRODUCTION The concept of internal audit starts from the management of an organization that has responsibility to plan, organize, and direct the activities of the organization. That responsibility can be seen as control and internal audit arises from the management control function (Ratliff et al. 1996, 8). The definition of internal audit according to The Institute of Internal Auditors (IIA), which is an independent objective assurance and consulting activity designed to add value and improve an organization's operations. The standard commonly used by organizations around the world regarding the implementation of internal audit is the International Standards for the Professional Practice of Internal Auditing by The IIA. There are two main parts in the International Standards for the Professional Practice of Internal Auditing by The IIA which regulates the "attributes" and "performance" of internal audit. Attributes can be input that must be met by internal audits in carrying out their work and performance as outputs that are shown or achieved on assurance and consulting activities that have been carried out by internal audits. If that can be realized, then the existence of internal audit is very beneficial for the organization and not just just being an examiner. Existence of an internal audit is certainly needed by a holding company. One holding company that realizes the importance of internal audit is PT Gama Multi Usaha Mandiri. PT Gama Multi Usaha Mandiri is a holding and investment company owned by Gadjah Mada University (UGM) and operates in various business sectors. Evaluating the internal audit unit’s attributes and performance at PT Gama Multi Usaha Mandiri is important because the unit still experiences various obstacles in carrying out its duties, that the subsidiaries and business units of
protect assets and reduce the possibility of fraud, increase efficiency in operations, improve financial reliability and integrity, ensure compliance with laws and regulations, and establish monitoring procedures. According to Zamzami, Faiz, Mukhlis (2015, 5) there are three types of internal audit assignments, there are financial audits, non-financial audits, and special purpose audits. A financial audit is an audit carried out on transactions, accounting records, and financial statements, both at the department level and central level. While non-financial audit consists of performance audit, compliance audit, procurement audit, information system audit, internal control structure review, quality assurance audit, environmental audit, risk audit, and social audit. Performance audit to assess how the acquisition and use of resources in an organization, whether it has been used in a 3E manner, namely economic, effective, and efficient. Compliance audits are related to whether every activity or decision made by the organization is in accordance with applicable rules, policies, procedures, and laws. Procurement audits include oversight of the procurement of goods or services in the entire organization environment. Information system audit where the auditor reviews the internal controls of the existing information system and how the auditee uses the system. This audit aims to assess the effectiveness and efficiency of work unit activities, the reliability of the financial reporting process, compliance with applicable regulations and safeguarding work unit assets. Quality assurance audit is where internal audit must also understand the quality assurance audit activity and how it fits into the organization's overall governance environment (Moeller 2009, 679). Environmental auditing where internal audit is interested in reviewing compliance with regulations and laws, accuracy of accounts related to environmental issues, and ensuring disclosures are made appropriately (Sawyer, Dittenhofer, and Scheiner 2003, 290). Risk audit also has a role to play in evaluating the effectiveness and contributing to the improvement of risk management processes. Furthermore, social audit is a type of audit that allows organizations to assess and demonstrate social, economic, and environmental benefits and limitations (Boyd, 2001). Akmal (2009, 18) explained the scope of internal audit work which in the standard was formulated briefly as testing and evaluating the adequacy and effectiveness of controls. The scope of internal audit work consists of (1) reviewing data and information reliability and integrity, (2) reviewing compliance with policies, procedures, regulations, and legislation, (3) reviewing tools to protect assets and verify the existence of assets, (4) reviewing the efficiency,
effectiveness, and economic acquisition and use of resources, (5) reviewing operations or programs and determining the results in line or not with the objectives, (6) reviewing integrity and ethical values. International Standards for the Professional Practice of Internal Auditing The standards which were revised in 2016 and valid as of January 2017 is an improvement from the revised standards in 2012. This standard consists of two main parts, there are attributes and performance standards. Attribute standards include objectives, authority, responsibility, independence, and objectivity. While performance standards include planning, communication and approval, management of resources, policies and procedures, coordination and encoding, reports to senior management and the board, external service providers and organizational responsibilities on internal audit, the nature of work, planning assignments, implementation assignment, communication of results, public opinion, monitoring the development and communication of risk acceptance. The Institute of Internal Auditors (IIA) also developed a code of ethics for the internal audit profession that consists of principles and rules of conduct. Principles include four points, consist of integrity, objectivity, confidentiality, and competence. Internal audit integrity inspires confidence and therefore is the basis for trust in internal audit's judgment. Internal auditors demonstrate the highest level of professional objectivity in obtaining, evaluating, and communicating information about the activity or process being tested. Internal auditors exercise balanced judgment on all relevant matters and are not unduly influenced by personal or other interests in making judgments. Internal auditors respect the value and proprietary nature of the information they receive and do not disclose that information without proper authorization, unless required by law or the profession. Internal auditors apply the necessary knowledge, skills, and experience in providing internal audit services. RESEARCH METHODS This research is qualitative research. Qualitative research is an approach that allows a person to examine other people's experiences in detail by using a specific set of research methods (Hennink, Hutter, and Bailey 2011, 10). Meanwhile, according to Denzin and Lincoln (2008) states that qualitative research involves interpretive, naturalistic approaches to the world. This
The types and sources of data used in the study consisted of secondary data and primary data. There are several secondary data used in this study. a. International Standards for the Professional Practice of Internal Auditing by IIA. b. Internal Audit Charter of PT Gama Multi Usaha Mandiri. c. Letter of assignment, assignment steps, and structure of the audit report. d. Other documents related to internal audit. While the primary data used in the study are. a. In-depth interviews will be conducted with several parties, the President Director of PT Gama Multi Usaha Mandiri, Director of Finance and HR of PT Gama Multi Usaha Mandiri, internal audit unit of PT Gama Multi Usaha Mandiri, and Directors of subsidiaries (auditee). b. The second primary data was obtained through observation, namely direct observation of the audit implementation process by internal audit units at the subsidiary or business unit of PT Gama Multi Usaha Mandiri. Data obtained in the form of observations from activities carried out by the internal audit unit. Data collection techniques are document analysis, in-depth interviews, and observations as described above. As for data analysis techniques, this study is guided by Yin (2014, 143) where the data analysis technique that is right to be used in this research is a combination of pattern matching techniques and explanation building. These techniques will be used when comparing the International Standards for the Professional Practice of Internal Auditing with the attributes and performance carried out by the internal audit unit and then the results will be explained in the discussion of results. The stages of data analysis have been completed, then the findings and interpretations of the research must be evaluated to assess their accuracy and validity. Therefore, the final stage is needed which is testing validity and reliability. Validity testing is carried out through member checking and triangulation. Member checking conducted in this study is to bring back the results of transcripts of interviews to each participant to confirm and sign that they have agreed to the interview results used for research purposes. While triangulation is carried out namely data,
methods, and theory triangulation. Gibbs (in Creswell 2014, 285) states that reliability indicates that the approach used by researchers is consistent if applied by other researchers and for different projects. Yin (2014, 48) also added that the purpose of this reliability is to ensure that if the researcher follows the procedure or conducts the same case study, the researcher will get the same results and conclusions. Reliability testing in this study uses two methods suggested in Yin (2014, 49) the use of case study protocols and the preparation of case study database. RESEARCH RESULT AND DISCUSSION Prior to the structural internal audit unit, PT Gama Multi Usaha Mandiri had been audited internally. However, since April 2017 the internal audit unit at PT Gama Multi Usaha Mandiri began to be formed. At that time, the Director of Finance and HR who had served effectively since January 2017 had a desire to form a special team that assisted the Board of Directors in carrying out their duties. This desire arose from the Director of Finance and HR because he saw that the operational activities of PT Gama Multi Usaha Mandiri were quite complex, so it needed a mechanism to ensure that all business units and subsidiaries had good governance and control. PT Gama Multi Usaha Mandiri's internal audit unit consists of three personnel including one person as head and two people as members. The following figure shows the process of carrying out assignments from the internal audit unit. The period of time stated in each process in the following picture is not absolute, which means that there are adjustments when the audit process is carried out. Related follow-up has also not been formally implemented by the internal audit unit.
Organizational Independence Not yet fulfilled
I: FR2-
MTU3-
Individual Objectivity Can be fulfilled
I: FR2-
ASW4-19, 21
ASH7-
O: Observation 7 1130 Impairment to Independence or Objectivity Can be fulfilled
I: FR2-
MTU3-
8 1130.A
Can be fulfilled
I: ASW4-
ABP5-
9 1210 Proficiency Quite Fulfilled, But there are still deficiencies
I: AH1-
FR2-
MTU3-
ABP5-
O: Observation 10 1210.A Can be fulfilled
I: MTU3-
11 1210.A
Quite Fulfilled, But there are still deficiencies
I: ABP5-
O: Observation 12 1210.A Not yet fulfilled
I: ABP5-
O: Observation 13 1210.C Can be fulfilled
I: MTU3-
Due Professional Care Can be fulfilled
I: MTU3-
ABP5-
O: Observation 15 1220.A Can be fulfilled
I: MTU3-
ABP5-
O: Observation 16 1220.A Not yet fulfilled
I: ABP5-
O: Observation 17 1300 Quality Assurance and Improvement Program Not yet fulfilled
I: MTU3-
O: Observation 18 1322 Disclosure of Nonconformance Not yet fulfilled
I: MTU3-
Source : Results of interviews, document analysis, and observations While the evaluation of the performance of the internal audit unit consists of 28 points. The results of the performance evaluation of the internal audit unit at PT Gama Multi Usaha Mandiri
showed that there were eleven points that could meet the standards, eleven points that could meet the standards but there were still deficiencies, and six points that could not meet the standards. If generalized, the performance of the internal audit unit of PT Gama Multi Usaha Mandiri is partially conforms and meets the standards. Table 2 Summary of Evaluation of Internal Audit Unit’s Performances at PT Gama Multi Usaha Mandiri No Evaluation Indicators Indicators Fulfillment Standard Evidence Number Sub Standard Title 1 2000 Managing the Internal Audit Activity Quite Fulfilled, But there are still deficiencies
I: MTU3-60, 62, 64
ABP5-
2 2010 Planning Not yet fulfilled
I: AH1-
MTU3-
Communication and Approval Quite Fulfilled, But there are still deficiencies
I: MTU3-69, 71
O: Observation 4 2030 Resource Management Not yet fulfilled
I: AH1-
FR2-
MTU3-
O: Observation 5 2040 Policies and Procedures Can be fulfilled
I: MTU3-
D: Inspection Procedure 6 2050 Coordination and Reliance Not yet fulfilled
I: AH1-
FR2-
ASW4-25, 27
O: Observation 7 2060 Reporting to Senior Management and Not yet fulfilled
I: ASW4-
O: Observation
elements of performance standards that have not been fulfilled. In terms of implementation, sometimes the internal audit unit still finds obstacles in identifying, analyzing, and evaluating information so that it is difficult to produce adequate assignments. The most important thing about the audit assignment is the follow-up of recommendations by management and the internal audit unit needs to monitor the implementation of the follow-up. Up to now, follow-up monitoring cannot be carried out by internal audit units due to time constraints. It can be concluded that the internal audit unit at PT Gama Multi Usaha Mandiri is partially compliant with the standard. But that does not mean that the assessment is good enough and safe. Deficiencies in the standard attributes and performance that still exist in the internal audit unit must be addressed as soon as possible. This is done to be able to create a more mature internal audit activity so that what is the goal of the existence of internal audit can be achieved. There are several causes of the incompatibility of attributes and performance of the internal audit unit at PT Gama Multi Usaha Mandiri. a. The position of the internal audit unit in the organizational structure of PT Gama Multi Usaha Mandiri which resulted in the difficulty of fulfilling organizational independence. b. The absence of an audit committee function and direct communication access to the Board of Commissioners of PT Gama Multi Usaha Mandiri. c. Internal audit unit personnel who are not sufficiently appropriate and adequate. So far, the experience in the audit is the Head of Internal Audit of PT Gama Multi Usaha Mandiri, while the two members of the internal audit unit first started the experience. d. The establishment of PT Gama Multi Usaha Mandiri's internal audit unit which has been running for approximately one year. The implementation of the internal audit which has been running since June 2017 has become a strong factor in the inadequacy of internal audit units both in terms of attributes and performance. One year is still considered too short because of the many types of business that the internal audit unit must understand. The diversification of business types from PT Gama Multi Usaha Mandiri resulted in the internal audit unit requiring an in-depth understanding of the operations of each business. e. As a result of the lack of management of internal audit resources, one of which is in the form of education and training.
f. PT Gama Multi Usaha Mandiri does not have a good coordination system between internal audit units and other external audits. g. There are limited resources at the time of the internal audit unit. Because of the tight activity they must run, the internal audit unit does not have the time to monitor follow-up on recommendations. h. Weaknesses of auditees that do not have accounting policies that cover the principles, basics, regulations, and procedures used in the preparation and presentation of financial statements. Next is the implementation of validity and reliability testing because a study must avoid bias, validity, and reliability. To be able to state that this research is valid, one of them is by doing member checking. After conducting interviews, researchers transcribed and reduced the results of the interview. The transcript that has been completed, then given back to the participant for review whether the content is in accordance with what was stated by the participant. The proof of the member checking has been that each participant signs their signature on the last page of each transcript. In addition to member checking on interviews, researchers also do member checking on observations. After compiling the summary of the observations, the researcher gives the summary to the internal audit unit to be read and analyzed. The internal audit unit agreed that it was true that the researchers participated in the activities described in the summary of observations. The next way to test validity is by triangulation, both data (source) and method (technique). In testing the reliability of research, researchers have compiled structured all data collection procedures, be it documents, interview results, and observations that are elaborated in full and detailed in this chapter. Researchers have also compiled and applied the research design which is the sequence of research implementation from beginning to end, so that it can produce a report that the reader and the next researcher can understand and apply. CONCLUSION The results of the evaluation of the suitability of the attributes and performance of PT Gama Multi Usaha Mandiri's internal audit units show their partial compliance with the standards.
f. PT Gama Multi Usaha Mandiri continues to strive to make improvements to the risk management process and continues to seek delegation of authority in risk management to each business unit and subsidiaries. g. PT Gama Multi Usaha Mandiri's internal audit unit must develop a consistent process related to the relationship between the internal audit unit and external audit to ensure that the scope of the assignment is appropriate and minimize the possibility of duplication of activity. h. The internal audit unit of PT Gama Multi Usaha Mandiri must learn about the mandatory elements of the International Professional Practice Framework (IPPF) which includes codes of ethics, definitions, and standards. REFERENCES Akmal. 2009. Pemeriksaan Manajemen Internal Audit. Edisi Kedua. Jakarta: Indeks. Boyd, Graham. 2001. Social Auditing- A Method of Determining Impact. Alana Albee Consultant and Associates. UK : Caledonia. Creswell, John.W.1998. Qualitative Inquiry And Research Design: Choosing Am ong Five Traditions. London: Sage Publications, Ltd. Creswell, John. W. 2014. Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. Edisi Ketiga. California: Sage Publications, Inc. Denzin, N.K dan Lincoln, Y.S. 2008. The Landscape of Qualitative Research. Thousand oaks, CA: Sage Publications, Inc. Gama Multi. 2017.“An Overview PT Gama Multi Usaha Mandiri.” Diakses pada 26 November
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