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Internal Audit and Financial Investigations Act (Cap. 461) Consolidated

CHAPTER 461

INTERNAL AUDIT AND FINANCIAL INVESTIGATIONS ACT

To provide for the regulation of the internal audit and financial investigative functions, including the power to carry out effective independent internal audits and financial investigations, providing for the necessary safeguards to ensure the protection of the financial interests of Government including the funds it may receive or be required to manage under Malta’s international obligations.

25th July, 2003

ACT VI of 2003, as amended by Act IX of 2005 and Legal Notice 427 of

2007.

PART I
PRELIMINARY

1. The short title of this Act is the Internal Audit and

Financial Investigations Act.

2. In this Act unless the context otherwise requires -

"Audi t Committ ee" means the Aud it Co m m i ttee established under article 7(3) of the Central Bank of Malta Act;
"auditee" means any entity which is or may be the subject of an internal audit and, or a financial investigation performed by the Director as provided for in this Act;
"Board" means the Internal Audit and Investigations Board;
"Central Bank of Malta" or "the Bank" means the Central Bank of Malta established by article 3 of the Central Bank of Malta Act;
"com pliance and assurance f unctions" means t hose fu nct ions wi thin a Gov e rnment department o r ministry that ensure that financial and other related c ontrols, systems, pol icies and proce d ures neces sary for the proper func tioning of tha t Government department or ministry are adhered to;
"conflict of interest" is a situ ation w h ere any officer of the Directorate has a private or personal interest to influence, or appear t o i n fl uence that wh ich i s ef fect ively expected of h im in the performance of his duties;
"Director" means the Director, Internal Audit and Investigations Directorate and includes, to the extent of the authority given, any person authorised in that behalf by the Director;
"Directorate" means the Inte rn al Audi t and Inv e sti g atio ns
Directorate referred to in Part IV of this Act;
"entity" includes both natural and legal persons, including any body or association of persons, whether corporate or unincorporate;
"financial investigation" means the in-depth examination of all circumstance s relative to irregularities a nd cases of susp ected

Short title. Definitions.

Amended by:

IX. 2005.6.

Cap. 204.

Cap. 204.

fraud , in clud ing t h e corr upt io n o f p ubl ic o fficers, an d, i n t h at regard, th e acqu i ri ng of reco rd s and, o r, inform ati on and the carrying out of related assessments, analysis and recommendations, such "financial inv e stigatio n" bei ng lim ited in scope to the financial implications that could arise out of such an irregularity or suspected fraud;
"functions" includes powers and duties;
"internal audit" means an independent, objective assurance and consult i ng activ ity desig n ed to ad d val u e and impro ve th e operations of auditees, helpin g the auditee to acc omplish its objectives by brin ging a systematic, d i scip lined app r oach to evaluate and im prove the ef fectiv eness of risk m a nag e m e n t , control, and governance processes;
"irregularity" means whichever act or omission which unlawfully diminishes public funds and whatever is not consonant with the proper management thereof;
"public funds" also includes funds that Government receives, pays, including funds to local councils, or is required to manage under Malta’s international obligations, or under any other public funds arising under any other law;
''public officers'' shall have the same meaning as is assigned to it in the Constitution of Malta, and includes officials of international organi zations with whom Malt a has international obligations, whilst performing their duties on Maltese territory.
PART II
GENERAL PROVISIONS

Separate functions. 3. The Directorate shall have two separate and distinct functions: internal audit and financial investigations.

Internal audit. 4. An internal audit in the manner as may be prescribed by regulations may be carried out in any department of Government or any entity falling under the supervision of Permanent Secretaries, for the purpose of assisting them in the effective discharge of their duties.

Financial investigation.

5. A financial investigation may be carried out in terms of the provisions of this Act in any department of Government and in any other public or private entity which is in any way a beneficiary, debtor or manager of public funds, for the purpose of protecting public funds against irregularities and fraud, or otherwise to assess such public or private entities’ liability to contribute to such funds.

PART III
THE INTERNAL AUDIT AND INVESTIGATIONS BOARD

The Board. 6. There shall be a Board, to be known as the Internal Audit an d In vest iga tio ns Board, whi c h shall exercise the functions assigned to it by this Act.

Appointment of

Board.

7. The Board shall be appointed by the Prime Minister for such period as the Prime Minister may determine, and it shall be

directly responsible to him.

8. (1) The Board shall be composed of:

(a) the Secretary to Cabinet as Chairperson; (b) the Director;
(c) the Permanent Secretary in the Ministry of Finance;
(d) a person of a recognised standing in the accounting and, or, auditing profession, who is not a public officer; and
(e) one other member:
Provided that at least two members shall have expertise in disciplines related to public sector financial management.
(2) The Board shall meet at least quarterly and shall otherwise regulate its own procedure.
(3) The decisions of the Board shall be taken by a majority of votes and the Chairperson shall have both an original and a casting vote in case of an equality of votes.

Composition of

Board.

9. The Board shall have the following functions:

(a) to serve as an independent and objective body to monitor the public internal financial control function in Malta;
(b) to oversee the work of the Directorate;
(c) to safeguard the continued independence of the
Director and officers of the Directorate;
(d) to endorse or otherwise plans, budgets and schedules as proposed by the Director for the proper administration of the Directorate;
(e) to require the Directorate to carry out specific tasks as provided under this Act, as and when necessary;
(f) to set policies, procedures and methods for the proper functioning of public internal audit and for the carrying out of financial investigations.
PART IV
THE INTERNAL AUDIT AND
INVESTIGATIONS DIRECTORATE

10. The Internal Audit and Investigations Directorate, shall be the body charged with ex ercising and perform ing the funct ions assigned to it under this Act. The Directorate shall be headed by the Director.

11. (1) The officers of the Directorate shall be public officers. (2) The Director and the other officers of the Directorate shall,

before entering upon their duties, take an oath in the form as set out
in the Schedule to this Act, in the hands of the Attorney General, that they will faithfully and impartially perform the duties of their office, and that they will not divulge any information acquired by

Functions of the

Board.

The Directorate.

Public officers.

them under this Act, except in those circumstances specified in this
Act.

Independence. 12. In the fulfilment of their functions under this Act, the Director and other officers of the Directorate shall not be subject to any direct or indirect influence or control by the auditee and shall not themselves influence or control the auditee.

PART V
FUNCTIONS OF THE OFFICERS OF THE DIRECTORATE

Management. 13. The Director shall be responsible for the day-to-day management of the Directorate.

Report. Amended by: IX. 2005.6.

14. (1) The Director shall, as soon as may be, after concluding a financ ial investigation or an internal audit, transmit a report thereof to the Permanent Secretary under whose supervision the auditee falls. The Director may also transmit a copy of such report to the auditee.

(2) Within one month of receipt of such report, the Permanent Secretary shall give such instructions to the auditee as may be necessary to rem e dy any shortcoming s , an d sh all info rm th e Director accordingly.
(3) Notwithstanding subarticles (1) and (2), where the auditee is the Central Bank of Malta, any report of a financial investigation carried out at the Bank shall be presented to the Chairman of the Audit Committee of the Bank who shall, within one month of the receipt of such report, give instructions to the Governor of the Bank as may be necessary to remedy any shortcomings, and shall inform the Director accordingly.

Follow-up reviews. 15. The Director shall conduct such follow-up reviews as may be necessary after an internal audit and financial investigation.

Suspicion of irregularity.

Conflict of interest.

Amended by:

L.N. 427 of 2007.

16. If an entity has reason to suspect any irregularity and, or a suspected case of fraud of public funds, it shall refer the matter fo rt hw it h to t h e D i rect or, an d sh all supply to the Director a l l information in his possession relating thereto.

17. (1) Where the Director or the Board considers that there wou l d be a confl i ct o f in terest if the Direct or himself wer e to conduct an internal audit or a financial investigation, the Board may appoint a senior public officer from amongst the officers of the Directorate to conduct that investigation in his stead.

(2) It shall be the duty of every officer of the Directorate who has an y fo rm of a con f lict o f in terest in any int e rn al au dit or financial investigation, he is assigned to work upon, whether such conflict is direct or indirect, to immediately disclose to the Director his interest and refrain completely from involving himself in that particular case:
Provided that any officer of the Directorate who knowingly acts in contravention of this subarticle shall be guilty of an offence against this Act and shall, on conviction, be liable to a fine (multa) of not more than two thousand and three hundred and twenty-nine euro and thirty-seven cents (2,329.37), and shall also be subject to disciplinary proceedings as provided for in the Pu blic Ser v ice Commission (Disciplinary Procedures) Regulations.

S.L. Const. 03

18. Whenever, and as soon as, the Director firmly establishes the existence of suspected cases of irregularities and, or suspected cases of fraud concerning the responsibilities of the auditee under review, th e Directo r shal l, if he is of th e o p ini on t h at the i rregul arity, if proved, would co nst itute a criminal of fence, immediatel y inform the Attor n ey General; other w ise, if the Director is of the o p inion that the ir regulari t y is of an administrative nature, he shall inform the Permanent Secretary of the auditee:

Provided that in the case of the Central Bank of Malta, where the Director is of the opinion that the irregularity is of an administrative nature, he shall inform the Chairman of the Audit Committee of the Bank.

Suspected cases of irregularity or fraud.

Amended by: IX. 2005.6.

19. The Director shall, not later than the first three months of each year, compile and transmit to the Board an Annual Report dealing generally with the activities of the Directorate during the previous year and containing such in formation relating to the activities of the Directorate as the Board may from time to time require. The Board shall determine the distribution of such a report as and when required.

20. (1) Except as may be expressly provided by any law, the Director shall, for the purpose of carrying out his functions under this Act, have the power -

(a) to enter and inspect any premises of an auditee in order to conduct an internal audit and, where he has reason to suspect that irregularities and, or fraud, have occurred or are occurring, to enter any premises of an auditee for the purpose of conducting a financial investigation:
Provided that, if access is required to any premises occupied in whole or in part for the purpose of habitation, such access shall require the prior issue of a warrant signed by a Magistrate:
Provided further that entry shall take place during daytime;
(b) to require the auditee to produce any books, records, files, accounts, documents or information including any computer data in any form and or part thereof, including contracts, bills, vouchers and receipts relating to them, and if deemed necessary by the Director, for the latter to retain such documents in the original, and to ensure that copies or extracts are made thereof without paying any fee therefor

Annual report.

Power of entry.

notwithstanding any law or regulations to the contrary. (2) Without prejudice to subarticle (1)(b), and for the purpose
of his functions under this Act, the Director may rely on any of the
records kept or made by any audit or investigative unit of any entity includi ng th e p e rson or uni t discharg ing the co m p liance and
assurance functions within the Government department or ministry concerned.

Assistance. 21. When conducting an internal audit or a financial investigation concerning funds managed by Malta in terms of its in ter n at io nal o b l i g a ti on s, th e Dir e ct or may b e assi sted b y representatives of the international organisation concerned, who m a y parti c i p ate joint l y wit h the Direct or in the audit or inves t igation, as the ca se may be, and for such purpos e such representatives shall be considered to be under the same obligations as officers of the Directorate and shall, before entering upon their duties, take the oath specified in the Schedule to this Act.

Information furnished by auditee. Amended by: IX. 2005.6.

Co-ordinating

Committee.

22. (1) All information furnished by an auditee during the course of any internal audit or financial investigation shall at all tim es be treated as confidential an d shall be solely used by the Directorate for the purpose of carrying out the internal audit and, or financial investigation.

(2) The Director shall treat internal audit reports and reports of financial investigations as strictly confidential and shall, except for th e purp o se o f any crimi nal investigati on or pro secuti on, only disclose their contents to the Permanent Secretary or, as the case may be, the Chairman of the Audit Committee of the Central Bank of Malta, and, if necessary, to the Board, or to the Auditor General.
(3) Without prejudice to the rights of the Auditor General under any law, no information obtained in any way under this Act shall be disclosed except:
(a) for the purposes of the financial investigation and the prosecution of a criminal offence;
(b) to officers of the Directorate in the course of their duties under this Act; and
(c) in matters which under this Act arise out of Malta’s international obligations, to the relevant foreign audit and control authorities.
PART VI
MISCELLANEOUS

23. For the purposes of article 9(a), the Board shall appoint a Co-ordinating Committee, to be chaired by the Director, in order to co-ord inate the activiti es of, and to facilitate the exch ange of information between, different entities charged with the protection and safeguarding of public funds; the terms of reference of the Co- ordinating Committee shall be determined by the Board.

24. Any person who wilfully obstructs the Director in the performance of his functions under this Act, or who fails, when reque s te d, to grant access to a n y premises or to produce any records to the Director, or who fails to comply with the provisions of article 16, shall, without prejudice to any other liability under any other law, be guilty of an offence against this Act and shall, on con v icti on, be liabl e to a fine ( mu lta ) of n o t more th an two thousand and three hundred and twenty-nine euro and thirty-seven cents (2,329.37) or to imprisonment for a term of not more than three months, or to both such fine and imprisonment.
25. (1) The Board shall, once every three years, appoint auditors or firms of auditors, duly certified under the provisions of the Accountancy Professions Act , to conduct reviews o f the Directorate’s operations.
(2) The auditors or firms of auditors appointed under subarticle (1 ) sh all be i ndep e nd ent of the Directo r an d the work of the Directorate and, on completion of the review, shall submit a written report to the Board.

Offences and penalties. Amended by:

L.N. 427 of 2007.

Review. Cap. 281.

26. The Prime Minister may from time to time make regulations for the better giving effect to any of the provisions of this Act.

Regulations.

SCHEDULE
(Articles 11 and 21)
Oath of Officers of the Internal Audit and Investigations Directorate
''I …………………………………………………….., solemnly swear/affirm that I will honestly and diligently fulfil my duties as an officer of the Internal Audit and Investigations Directorate in conformity with the requirements of the Internal Audit and Financial Investigations Act, and that I will not, except as provided by law, at any time disclose or make known any matter which comes to my knowledge by reason of my service as such.
So help me God.
_______________________________ Signature of person taking oath
Sworn and signed before me this .............. day of ....................... of the year
............... at ............................................................................
_______________________________ Attorney General