The Saeima¹ has adopted
and the President has proclaimed the following Law:

Internal Audit Law

Chapter I
General Provisions

Section 1. Terms Used in this Law

The following terms are used in this Law:

1) institution - a body directly subordinate to the Prime Minister, a body subordinate to a minister, except a ministry, as well as a derived public person, except local governments;

2) internal control system - an aggregate of risk management, control and administrative measures, for the establishment of which the State Secretary of a ministry or the head of an institution is responsible and the task of which is to ensure continuous, economic, efficient and rational operation of a ministry or an institution; and

3) internal audit - independent and objective activity of an internal auditor, which results in the provision of an opinion or a consultation of the auditor with the aim of improving the operation of the internal control system in the ministry and the institution.

Section 2. Purpose of the Law

The purpose of the Law is to determine the legal regulations for the establishment, operation and co-ordination of the internal audit system in a ministry and institution, also the duties, rights and conditions of internal auditors for the conformity with the principles of independence and objectivity.

Section 3. Application of this Law

(1) This Law shall apply to ministries and institutions. Section 5, Paragraph nine of this Law shall apply to local governments and local government institutions. Section 8 of this Law shall apply to local governments, local government institutions and private individuals which have received funds from programmes and projects financed by the European Union or foreign financial assistance.

(2) This Law shall apply to the control of rational use of resources (funds granted) by international organisations if it is provided for in the relevant international agreements.

Section 4. Establishment of the Internal Control System

The establishment of an internal control system, the supervision and improvement thereof shall be ensured by the State Secretary or the head of an institution in accordance with the State Administration Structure Law.

Chapter II
Establishment, Operation and Co-ordination of an Internal Audit System

Section 5. Establishment of an Internal Audit System

(1) The Prime Minister shall determine the internal audit system for the institutions directly subordinate thereto.

(2) A minister shall determine the internal audit system for the institutions subordinate thereto. A decision regarding the need for the establishment of an internal audit system for a State security institution shall be taken by the minister under whose supervision the respective State security institution is.

(3) The internal audit system of a derived public person which, in accordance with the law, is independent in the fulfilment of the functions specified by law shall be determined by the head of an institution.

(4) The State Secretary or the head of an institution shall be responsible for the operation of the particular internal audit system and the establishment of an internal audit unit.

(5) An internal audit unit shall be established in the institutions and ministries directly subordinate to the Prime Minister, as well as in the institutions referred to in Paragraph three of this Section.

(6) An internal audit unit of institutions, except the institutions directly subordinate to the Prime Minister, shall be established in cases where it is prescribed by legal acts regulating the field of the European Union financial assistance or foreign financial assistance.

(7) The need for the establishment of an internal audit unit in institutions not referred to in Paragraphs five and six of this Section shall be co-ordinated with the Minister for Finance, evaluating the following criteria:

1) the extent and social significance of the functions specified for the institution;

2) the participation of the institution in the implementation of the financial assistance of the European Union or international organisations or foreign financial assistance;

3) the amount of the funds from the State budget granted to the institution and the amount of material values transferred under the management thereof;

4) the impact of the risks related to the operation of the institution on the State budget losses; and

5) the structure of the institution.

(8) An internal audit unit shall be directly subordinate to the State Secretary or the head of an institution.

(9) Local governments shall determine an internal audit system and methodology for local governments and local government institutions.

Section 6. Duties of an Official Responsible for the Establishment of an Internal Audit Unit

(1) The State Secretary or the head of an institution shall:

1) determine the procedures by which an internal audit and the supervision of implementation of the recommendations of the internal audit shall be performed in the relevant ministry or institution in accordance with the regulatory enactments regulating internal audits;

2) approve the strategic plan and annual plan of the internal audit unit;

3) take a decision regarding the implementation of recommendations included in an internal audit report;

4) submit to the Ministry of Finance the information and documents necessary for the performance of peer review;

5) inform the Ministry of Finance regarding the appointment to or release from the office of the head of the internal audit unit; and

6) send information to the law enforcement authorities regarding the cases determined during the performance of an internal audit, regarding which justified doubts have arisen that they are related to illegal activities; and

7) send information to the State Chancellery for evaluation regarding the facts established during the performance of an internal audit, which affect the operation of State administration in general.

(2) The State Secretary and the head of an institution directly subordinate to the Prime Minister shall:

1) ensure accordingly timely submission of the internal audit unit plan, as well as the annual activity report of the ministry and institutions subordinate to the minister or institutions directly subordinate to the Prime Minister to the Ministry of Finance and the State Audit Office;

2) within two weeks, inform the Ministry of Finance regarding the establishment of an internal audit system and changes in the internal audit system; and

3) inform the relevant minister or Prime Minister regarding the results of the operation of the internal audit system.

Section 7. Tasks of an Internal Audit Unit

(1) An internal audit unit shall:

1) inspect the operation of the internal audit system of a ministry or institution;

2) perform system internal audits based on the risk assessment, as well as internal audits of the quality management system;

3) provide the State Secretary or the head of an institution with an opinion which includes an evaluation regarding:

a) the efficiency and conformity of the internal control system to the objectives of a ministry or an institution;

b) the reliability and adequacy of financial reports and other information;

c) the conformity of the activities of the units of a ministry or institution to regulatory enactments, specified functions and approved action plans;

d) the rational use of resources; and

e) the adequacy of the control of resource use and protection of resources from losses;

4) provide recommendations to the State Secretary or the head of an institution regarding the necessary improvements;

5) perform the supervision of the introduction of the internal audit recommendations;

6) provide consultations in order to promote the achievement of the objectives of a ministry or institution;

7) co-ordinate the co-operation and exchange of information between internal and external auditors;

8) determine the training needs of internal auditors;

9) ensure the implementation and quality supervision of the work related to the internal audit in all stages of internal audit; and

10) ensure the supervision of implementation of the recommendations of the State Audit Office and external auditors in a ministry or institution.

(2) The Cabinet shall determine the procedures for the performance of internal audits.

Section 8. Internal Audit of Programmes and Projects Financed by the European Union or Foreign Financial Assistance

(1) The internal audit of programmes and projects completely or partly financed by the European Union or foreign financial assistance, also in local governments and local government institutions, as well as of private individuals which have received funds from programmes and projects financed by the European Union or foreign financial assistance, shall be performed by a ministry or institution in accordance with the regulatory enactments regulating the field of management of programmes and projects completely or partly financed by the European Union or foreign financial assistance.

(2) The Ministry of Finance shall perform an internal audit in the ministry or institution which, in accordance with regulatory enactments is involved in the implementation of the management functions of programmes or projects completely or partly financed by the European Union or foreign financial assistance, as well as private individuals which have received funds from programmes and projects financed by the European Union or foreign financial assistance.

Section 9. Independence of an Internal Audit Unit

(1) An internal audit unit shall be independent from other units of a ministry or an institution in the planning of activities thereof, performance of the internal audit and notification of the results of operation.

(2) An internal auditor shall not engage in the performance of the direct functions of a ministry or an institution, the implementation of programmes and projects completely or partly financed by the European Union or foreign financial assistance, the development of individual projects or programmes, as well as in the establishment of the internal control system. The internal auditor may participate in the performance of such functions in the capacity of an advisor.

Section 10. Co-ordination of Internal Audit

(1) The Ministry of Finance shall be responsible for the co-ordination of internal audit and unified planning of long-term development of internal audit.

(2) The Ministry of Finance, in performing the co-ordination of internal audits, has the following tasks:

1) to prepare and submit to the Cabinet and the State Audit Office the compiled annual report regarding the activities of internal audit units in ministries and institutions;

2) to co-ordinate the training and improvement of professional qualification of internal auditors;

3) to provide ministries and institutions with consultative assistance in the field of internal audit;

4) to perform a peer review of the work of internal audit units established in ministries and institutions, not less than once every five years;

5) to supervise the certification system of internal auditors; and

6) to develop the method guidelines of internal audit.

(3) The Cabinet shall determine the procedures for the certification of internal auditors.

(4) The Cabinet shall determine the procedures for the performance of peer reviews of internal audits.

Chapter III
Internal Auditors

Section 11. Appointment (Employment) and Release (Dismissal) from Office of Internal Auditors

(1) The State Secretary or the head of an institution shall appoint to the office or remove from the office internal auditors on the basis of the State Civil Service Law, this Law and other regulatory enactments.

(2) A person who conforms with the mandatory requirements set forward for the applicant for office of a civil servant may enter into State civil service or employment legal relationships in order to fulfil the duties of an internal auditor.

(3) State civil service or employment legal relationships with an internal auditor shall be terminated:

1) in the cases specified in the State Civil Service Law or the Labour Law; or

2) for negligent performance of official duties or a shameful offence (violation of the principles of ethics) which is inconsistent with the status of an auditor.

Section 12. Duties of Internal Auditors

(1) An internal auditor has a duty to supplement his or her knowledge and improve professional skills regularly. The head of an internal audit unit and the State Secretary or the head of an institution shall provide an auditor with a possibility to improve his or her qualification.

(2) An internal auditor, in fulfilling official duties, shall be liable for the legality of his or her actions or failure to act. If an auditor has doubts regarding the legality of tasks, he or she has a duty to refuse the performance of the task, notifying in writing the official who has assigned the task, as well as the next highest official respectively.

(3) An internal auditor shall observe the following principles of ethics of internal auditors in his or her activities:

1) fairness. The internal auditor shall perform his or her work fairly, with due care and responsibility, observe the internal principles of ethics of the ministry or institution, shall not engage in activities which discredit the profession of the internal auditor or the internal audit, respect the ethical objectives of the ministry or institution and promote the achievement thereof;

2) objectivity. During an internal audit, the internal auditor shall evaluate all circumstances and evidence, without being influenced by his or her own interests or interests of another person, and disclose all the significant facts about the system inspected in the audit report;

3) confidentiality. The internal auditor shall not use the information acquired during an audit or consultation in such manner that would harm the objectives of the ministry or institution. The internal auditor shall only disclose the information acquired during an audit or consultation to the third person with the permission of the State Secretary or the head of an institution; and

4) competence. The internal auditor shall use his or her knowledge, skills and experience in the performance of an internal audit and provision of consultations.

Section 13. Rights of Internal Auditors

An internal auditor has the right to request the documents at the disposal of the relevant ministry or institution and become acquainted with them, as well as with the financial resources, premises and other material values thereof, to receive explanations and copies of documents from employees of the ministry or institution in matters related to the internal audit.

Section 14. Restrictions in the Work of Internal Auditors

(1) An internal auditor for at least one year may not audit such functions which he or she has previously performed in a ministry or an institution.

(2) An internal auditor shall notify the head of an internal audit unit in writing, but the head of an internal audit unit - the State Secretary or the head of an institution regarding any situation where there is or may be a conflict of interest.

Chapter IV
Internal Audit Council

Section 15. Establishment of the Internal Audit Council

The Cabinet shall approve the by-law and the personnel of the Internal Audit Council upon a recommendation of the Minister for Finance.

Section 16. Objective of the Internal Audit Council

The objective of the Internal Audit Council shall be to promote the improvement of the quality of internal audit, as well as the introduction and development of the internal audit policy and methods in ministries and institutions.

Transitional Provisions

1. With the coming into force of this Law, the Internal Audit Law (Latvijas Republikas Saeimas un Ministru Kabineta Ziņotājs, 2002, No. 24; 2006, No.7) is repealed.

2. Until 1 October 2010 the Cabinet shall issue the legal acts specified in this Law regarding internal audit.

3. Until the day of the coming into force of the relevant legal acts of the Cabinet, but not later than until 1 October 2010, the following Cabinet regulations, instructions and order shall be applicable:

1) Cabinet Regulation No. 306 of 10 June 2003, Procedures for the Performance of the Internal Audit in an Institution;

2) Cabinet Regulation No. 307 of 10 June 2003, Procedures for the Certification of Internal Auditors;

3) Cabinet Regulation No. 466 of 19 August 2003, Regulations Regarding Essential Requirements for Establishment of Internal Control Systems;

4) Cabinet Regulation No.55 of 16 January 2007, Procedures for the Performance of Peer Review of the Work of Internal Audit Units;

5) Cabinet Instruction No. 8 of 24 April 2007, Methodology of Internal Audit;

6) Cabinet Instruction No. 4 of 21 April 2008, Methodology of the Internal Audit of Programmes and Projects Completely or Partly Financed by the European Union; and

7) Cabinet Order No. 791 of 11 December 2008, On the Composition of the Internal Audit Council.

4. Section 5, Paragraphs five, six and seven of this Law shall come into force on 1 June 2010.

This Law has been adopted by the Saeima on 11 February 2010.

President V. Zatlers

2 March 2010, Riga

 

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¹ The Parliament of the Republic of Latvia

Translation © 2010 Valsts valodas centrs (State Language Centre)