Internal audit set to become compulsory in local governments

Author: Merili Kiipus

On 12 May 2022, the Government of the Republic approved a draft amendment to the Local Government Act that makes internal audit a requirement in local governments. At least once every four years, an internal audit must be conducted to verify that the internal control system meets certain requirements. The draft legislation was sent to Parliament for further deliberation and the amendments should enter into force on 1 June 2023.

Every local government is tasked with organizing and directing local affairs based on the legitimate needs of the population, and therefore it is important to provide the public and voters assurance that related activities meet the rules and requirements set.

To fulfil the internal audit obligation, local governments will retain the freedom to decide whether to establish an in-house internal audit position, outsource the service, or combine the two options. To help decide which of these options to prefer and how to proceed while  making the decision, read more here. What should be considered and noted  if the local government decides to create the internal auditor position, read here.

Regardless of how the local government decides to comply with the internal audit obligation, the internal auditor represents a partner who offers additional assurance – helping to evaluate whether the organization’s activities are in line with the various guidelines, laws and regulations and also whether appropriate control systems that hedge the risks related to the activities have been established and working as expected. With an effective and well-functioning internal control system, the organization can better achieve its goals and meet the expectations of various interest groups.