Internal Audit Charter

This Charter defines and identifies the mission, objectives, scope, authority and accountability of the Internal Audit Division (IAD).
 

Mission

The IAD's mission is to assist the EFAC Audit Sub Committee (ASC) and the management in protecting the HKMA, and its reputation, by independently and objectively evaluating the effectiveness of internal controls, risk management and governance process. In so doing, IAD seeks to provide objective assurance services designed to add value by recommending cost effective improvements to the HKMA’s operations.

Objectives

The Financial Secretary has delegated certain of his responsibilities under the Exchange Fund Ordinance to the Monetary Authority (MA). Under the Banking Ordinance, the MA has also the functions, amongst others, to promote the general stability and effective working of the banking system in Hong Kong. The MA should ensure that the responsibilities and functions entrusted to him are properly conducted.

Conduct of the responsibilities and functions of the MA is exercised through the office of the Hong Kong Monetary Authority (HKMA). The IAD of the HKMA is set up with the primary objective to assist the management of the HKMA in the effective discharge of its responsibilities and functions. This is achieved through comprehensive audit coverage sufficient to assure that assets and resources of the HKMA are appropriately safeguarded and accounted for, and that laws, regulations, policies, established procedures and guidelines are adhered to. The IAD will assess and report on the effectiveness of the internal controls and the control environment; the reliability of the financial and accounting systems as well as the management reporting systems.

The IAD will strive to be a front-end driving force helping to optimise and add value to the organisation's efficiency, effectiveness and propriety, and will be proactive, constructive, and cost-effective in making recommendations to the management.

Scope

The IAD is responsible for:

  • maintaining a professional and structured risk-based audit methodology which satisfies the requirements of the Exchange Fund Advisory Committee (EFAC) Audit Sub-Committee and external auditors;
  • promoting a high level of control awareness throughout the HKMA;
  • reviewing the economy with which resources in the HKMA are employed and conducting appraisals of efficiency and effectiveness in the use of such resources;
  • monitoring and evaluating the effectiveness of risk management and governance processes;
  • appraising the effectiveness and application of administrative, financial and operational controls and the reliability of information developed within the HKMA;
  • evaluating the sufficiency of and adherence to the HKMA policies and procedures;
  • reviewing compliance of the HKMA with governmental laws and regulations;
  • ascertaining the adequacy of controls for protecting the HKMA assets and, where appropriate, verifying the existence of assets;
  • ascertaining the controls over liabilities, contingencies and claims on the HKMA;
  • making recommendations on matters arising from audits to management and monitoring the proper implementation of management response;
  • providing advice on system development and implementation to improve system security and efficiency;
  • performing special reviews requested by the Chief Executive of the HKMA or EFAC Audit Sub-Committee;
  • maintaining effective communication channels with all the departments, divisions and offices of the HKMA, and demonstrating a good working knowledge of their activities; and
  • liaising closely with the Director of Audit and external auditors that may be appointed on matters relating to their audits of the Exchange Fund account.

Professional Standards

The IAD will adhere to the standards of best professional practice, including the International Standards for the Professional Practice of Internal Auditing, the Definition of Internal Auditing and the Code of Ethics issued by the Institute of Internal Auditors.

Authority, Independence and Accountability

  1. Authority

    In order that the IAD can achieve its mission and objectives effectively, it is to have full, free and unrestricted access rights to all activities, information, records, properties, and personnel of the HKMA in the proper performance of their duties. All staff members of the HKMA should provide the necessary assistance to, and cooperate with, the staff of the IAD.

    All information, records, and documents accessed during the course of internal audit activities will be kept confidential and used solely for the conduct of these activities.

  2. Independence

    It is important for the IAD to maintain a neutral and independent position. Other than playing an advisory role, the IAD shall not be involved in the management or control of the operations or functions of other departments, divisions, and offices of the HKMA.

    The IAD shall perform its work objectively with an impartial, unbiased attitude and avoid any conflict of interest.

    The IAD shall operate independently, objectively and separately from other departments, divisions, and offices of the HKMA. It reports directly to the Chief Executive of the HKMA and the EFAC Audit Sub-Committee.

    In order to maintain the independence of the IAD, changes in the Head of the IAD require prior consultation with the EFAC Audit Sub-Committee.

    The Head of the IAD may independently consult the EFAC Audit Sub-Committee without the presence of the Chief Executive of the HKMA.

  3. Accountability

    The IAD will issue a timely and constructive report following each internal audit visit to ensure quick corrective action being taken by auditees.

    The IAD will provide periodic reporting to the Chief Executive of the HKMA and the EFAC Audit Sub-Committee on whether:

    • internal audit strategies and plans are adequate and that audit activities have been directed towards those areas with the highest risk exposures and also at increasing the economy, efficiency, and effectiveness of operations;
    • appropriate and effective action has been taken by management on significant findings; and
    • internal and external audits are coordinated to avoid duplication.

    The effectiveness of the IAD shall be part of the accountability review process in the event of any major control failure within the HKMA.

Other Issues

  1. Duties and responsibilities of management

    It is the responsibility of management to design, implement and operate systems of internal controls and prepare the policies and procedures manuals to achieve the intended business objectives.

    The IAD should be given the necessary resources in terms of appropriate staffing levels and adequate technical training to achieve its mission.

  2. Duties of staff of the IAD

    The IAD will perform its tasks with proficiency and due professional care. It will adopt best practice in planning, conducting, reporting reviews and following up on the implementation of recommendations. It will keep abreast of new developments affecting their work and of matters affecting the HKMA's activities. Furthermore, the IAD will be responsive to the HKMA's changing needs, will strive for continuous improvement and maintain integrity in carrying out their activities.

    The Head of the IAD should establish quality assurance procedures and ensure that established standards and practices are followed.

    The Head of the IAD should be responsible for maintaining the charter in a current state. Amendment of the charter should be subject to the approval of the Chief Executive of the HKMA in consultation with the EFAC Audit Sub-Committee.

  3. Performance criteria to assess the effectiveness of the IAD

    Success criteria should be established for IAD. The criteria include but not restricted to the following:

    • the number and importance of audit findings and recommendations and the proportion which are accepted and implemented;
    • the achievement of target dates with respect to commencement and completion of planned audits;
    • client satisfaction surveys; and
    • feedback from key customers on their current and future service needs. 

This Charter was updated on 4 March 2019.

Last revision date : 26 August 2019