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Internal Auditing Act

The State of North Carolina defines guidelines prescribing requirement of internal auditing for state agencies under Article 79; Internal Auditing.

 

Article 79

Internal Auditing

§ 143-745. Definitions; intent; applicability

a. For the purposes of this section:

  1. “Agency head” means the Governor, a Council of State member, a cabinet secretary, the President of The University of North Carolina, the President of the Community College System, the State Controller, and other independent appointed officers with authority over a State agency. The agency head for the Department of Public Instruction shall be the State Board of Education.
  2. “State agency” means each department created pursuant to Chapter 143A or 143B of the General Statutes, and includes all institutions, boards, commissions, authorities, by whatever name, that is a unit of the executive branch of State government, including The University of North Carolina, and the Community Colleges System Office. The term does not include a unit of local government.

b. This Article applies only to a State agency that:

  1. Has an annual operating budget that exceeds ten million dollars ($10,000,000);
  2. Has more than 100 full-time equivalent employees; or
  3. Receives and processes more than ten million dollars ($10,000,000) in cash in a fiscal year. (2007-424, s. 1; 2009-516, s. 2; 2013-406, s. 1.)

§ 143-746. Internal auditing required

a. Requirements. — A State agency shall establish a program of internal auditing that:

  1. Promotes an effective system of internal controls that safeguards public funds and assets and minimizes incidences of fraud, waste, and abuse.
  2. Determines if programs and business operations are administered in compliance with federal and state laws, regulations, and other requirements.
  3. Reviews the effectiveness and efficiency of agency and program operations and service delivery.
  4. Periodically audits the agency’s major systems and controls, including:
    1. Accounting systems and controls.
    2. Administrative systems and controls.
    3. Information technology systems and controls.

b. Internal Audit Standards. – Internal audits shall comply with current Standards for the Professional Practice of Internal Auditing issued by the Institute for Internal Auditors or, if appropriate, Government Auditing Standards issued by the Comptroller General of the United States.

c. Appointment and Qualifications of Internal Auditors. – Any State employee who performs the internal audit function shall meet the minimum qualifications for internal auditors established by the Office of State Human Resources, in consultation with the Council of Internal Auditing.

d. Director of Internal Auditing. – The agency head shall appoint a Director of Internal Auditing who shall report to, as designated by the agency head, (i) the agency head, (ii) the chief deputy or chief administrative assistant, or (iii) the agency governing board, or subcommittee thereof, if such a governing board exists. The Director of Internal Auditing shall be organizationally situated to avoid impairments to independence as defined in the auditing standards referenced in subsection (b) of this section.

e. Insufficient Personnel. – If a State agency has insufficient personnel to comply with this section, the Office of State Budget and Management shall provide technical assistance.

f. Reporting Fraudulent Activity. – If an internal audit conducted pursuant to this section results in a finding that a private person or entity has received public funds as a result of fraud, misrepresentation, or other deceptive acts or practices while doing business with the State agency, the internal auditor shall submit a detailed written report of the finding, and any additional necessary supporting documentation, to the State Purchasing Officer. A report submitted under this subsection may include a recommendation that the private person or entity be debarred from doing business with the State or a political subdivision thereof. (2007-424, s. 1; 2013-382, s. 9.1(c); 2013-406, s. 1; 2015-241, s. 25.1(a); 2015-268, s. 7.4.)

§ 143-747. Council of Internal Auditing

a. The Council of Internal Auditing is created, consisting of the following members:

  1. The State Controller who shall serve as Chair.
  2. The State Budget Officer.
  3. The Secretary of Administration.
  4. The Attorney General.
  5. The Secretary of Revenue.
  6. The State Auditor who shall serve as a nonvoting member. The State Auditor may appoint a designee.

b. The Council shall be supported by the Office of State Budget and Management.

c. The Council shall:

  1. Hold meetings at the call of the Chair or upon written request to the Chair by two members of the Council.
  2. Keep minutes of all proceedings.
  3. Promulgate guidelines for the uniformity and quality of State agency internal audit activities.
  4. Recommend the number of internal audit employees required by each State agency.
  5. Develop internal audit guides, technical manuals, and suggested best internal audit practices.
  6. Administer an independent peer review system for each State agency internal audit activity; specify the frequency of such reviews consistent with applicable national standards; and assist agencies with selection of independent peer reviewers from other State agencies.
  7. Provide central training sessions, professional development opportunities, and recognition programs for internal auditors.
  8. Administer a program for sharing internal auditors among State agencies needing temporary assistance and assembly of interagency teams of internal auditors to conduct internal audits beyond the capacity of a single agency.
  9. Maintain a central database of all annual internal audit plans; topics for review proposed by internal audit plans; internal audit reports issued and individual findings and recommendations from those reports.
  10. Require reports in writing from any State agency relative to any internal audit matter.
  11. If determined necessary by a majority vote of the council:
    1. Conduct hearings relative to any attempts to interfere with, compromise, or intimidate an internal auditor.
    2. Inquire as to the effectiveness of any internal audit unit.
    3. Authorize the Chair to issue subpoenas for the appearance of any person or internal audit working papers, report drafts, and any other pertinent document or record regardless of physical form needed for the hearing.
  12. Issue an annual report including, but not limited to, service efforts and accomplishments of State agency internal auditors and to propose legislation for consideration by the Governor and General Assembly. (2007-424, s. 1; 2013-406, s. 1.)

§ 143-748. Confidentiality of internal audit work papers

Internal audit work papers are confidential except as otherwise provided in this section or upon subpoena issued by a duly authorized court. A published internal audit report is a public record as defined in G.S. 132-1 to the extent it does not include information which is confidential under State or federal law or would compromise the security of a State agency. An internal auditor shall maintain for 10 years a complete file of all audit reports and reports of other examinations, investigations, surveys, and reviews conducted under the internal auditor’s authority. Audit work papers and other evidence and related supportive material directly pertaining to the work of the internal auditor’s office shall be retained in accordance with Chapter 132 of the General Statutes. Unless otherwise prohibited by law and to promote intergovernmental cooperation and avoid unnecessary duplication of audit effort, audit work papers related to released audit reports shall be made available for inspection by duly authorized representatives of the State and federal government in connection with some matter officially before them.  (2013-406, s. 1.)

§ 143-749. Obstruction of audit

It shall be a Class 2 misdemeanor for any officer, employee, or agent of a State agency subject to the provisions of this Article to willfully make or cause to be made to a State agency internal auditor or the internal auditor’s designated representatives any false, misleading, or unfounded report for the purpose of interfering with the performance of any audit, special review, or investigation or to hinder or obstruct the State agency internal auditor or the internal auditor’s designated representatives in the performance of their duties.  (2013-406, s. 1.)