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The Internal Audit And Financial Investigations Act, 2003 (Bill No. 2)

A BILL

entitled

AN 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.

BE IT ENACTED by the President, by and with the advice and consent of the House of Representatives, in this present Parliament assembled, and by the authority of the same, as follows:-

PART I PRELIMINARY

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

Investigations Act, 2003.

Definitions. 2. In this Act unless the context otherwise requires -

"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; "compliance and assurance functions" means those functions
within a Government department or ministry that ensure that financial
and other related controls, systems, policies and procedures necessary for the proper functioning of that Government department or ministry are adhered to;
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"conflict of interest" is a situation where any officer of the Directorate sufficiently has a private or personal interest to influence, or appear to influence that which is effectively expected of him 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 Internal Audit and Investigations
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 circumstances relative to irregularities and cases of suspected fraud, including the corruption of public officers, and, in that regard, the acquiring of records and, or, information and the carrying out of related assessments, analysis and recommendations, such financial investigation being limited 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 consulting activity designed to add value and improve the operations of auditees, helping the auditee to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes;
"irregularity" means an act or omission which unlawfully diminishes public funds or is not consonant with the proper management thereof;
"public funds" also includes funds that Government receives, pays, or is required to manage under Malta’s international obligations or under any law;
''public officers'' shall have the same meaning as is assigned to it in the Constitution of Malta, and includes officials of international organizations with whom Malta has international obligations, whilst performing their duties on Maltese territory.
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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 and Investigations Board, which shall exercise the functions assigned to it by this Act.

Appointment of

Board.

Composition 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.
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(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.

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 methodologies for the proper functioning of public internal audit and for the carrying out of financial investigations.

PART IV

THE INTERNAL AUDIT AND INVESTIGATIONS DIRECTORATE

Functions of the

Board.

10. The Internal Audit and Investigations Directorate, shall be the body charged with exercising and performing the functions 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 them under this Act, except in those circumstances specified in this Act.

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.

The Directorate.

Public officers.

Independence.

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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. 14. (1) The Director shall, as soon as may be, after concluding a financial 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.

Follow-up reviews.

Suspicion of irregularity.

Conflict of interest.

Suspected cases of irregularity or fraud.

(2) Within one month of receipt of such report, the Permanent Secretary shall give such instructions to the auditee as may be necessary to remedy any shortcomings, and shall inform the Director accordingly.

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

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 forthwith to the Director, and shall supply to the Director all information in his possession relating thereto.

17. (1) Where the Director or the Board considers that there would be a conflict of interest if the Director himself were 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 any form of a conflict of interest in any internal audit 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 one thousand liri (Lm 1,000), and shall be also subject to any other administrative disciplinary proceedings as the Board, on the recommendation of the Director, deems fit.

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

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review, the Director shall, if he is of the opinion that the irregularity, if proved, would constitute a criminal offence, immediately inform the Attorney General; otherwise, if the Director is of the opinion that the irregularity is of an administrative nature, he shall inform the Permanent Secretary of the auditee.

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 information 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:

Annual report.

Power of entry.

daytime;
Provided further that entry shall take place during
(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 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 including the person or unit discharging the compliance and assurance functions within the Government department or ministry concerned.
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Assistance. 21. When conducting an internal audit or a financial investigation concerning funds managed by Malta in terms of its international obligations, the Director may be assisted by representatives of the international organisation concerned, who may participate jointly with the Director in the audit or investigation, as the case may be, and for such purpose 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.

22. (1) All information furnished by an auditee during the course of any internal audit or financial investigation shall at all times be treated as confidential and 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 the purpose of any criminal investigation or prosecution, only disclose their contents to the Permanent Secretary 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

Co-ordinating

Committee.

Offences and penalties.

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-ordinate the activities of, and to facilitate the exchange 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

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performance of his functions under this Act, or who fails, when requested, to grant access to any 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 conviction, be liable to a fine (multa) of not more than one thousand liri (Lm 1,000) 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 of the Directorate’s operations.

(2) The auditors or firms of auditors appointed under subarticle (1) shall be independent of the Director and the work of the Directorate and, on completion of the review, shall submit a written report to the Board.

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

Review. Cap. 281.

Regulations.

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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

Objects and Reasons

The objects of this Bill are to provide the machinery for the carrying out of effective independent internal audits and financial investigations.