The theoretical basis of organizing the internal control of public education institutions

Source: [10].

Table 4 higher education institutions of i-iv accreditation levels at the beginning of 2014/15 academic year, by types of education institutions and subordination (units)

Source: [10].

Fig. Types and structure of public education institutions

Given that the main activity of the education institution is to provide educational services, important areas of internal control are control over the efficient use of financial and other economic resources of the institution, as well as control over the quality of educational services provided by the institution and which are the main purpose of its creation and functioning. Our study was limited exclusively with economic aspects of the internal control of the education institution; we eliminated the quality control of services provided by the institution, although this direction of internal control is also important.

According to the letter of the Ministry of Education and Science of Ukraine «On guidelines for state attestation and internal control of education institutions» dated August 07, 2013 № 1 / 9-533 [13], internal control in education institution is an integral component of administrative measures for the organization and administration of the education institution's activity that provides detection of methodological, psychological and pedagogical, social and psychological factors of achieving or failure to achieve the objectives drawn, their analysis, development of corrective programs and their implementation in order to achieve the desired result.

Basic approaches to the formation of methods of internal financial control in public institutions, especially in public education institutions are provided by International Standards of Supreme Audit Institutions (ISSAI), developed and approved by the International Organization of Supreme Audit Institutions (INTOSAI), with taking into account current regulatory framework governing specifics of public education institutions' activities in Ukraine.

Very important role in the formation of the regulatory framework for carrying out internal audits of public education institutions is played by internal auditing standards approved by the Order of the Ministry of Finance of Ukraine dated October 04, 2011 № 1247 [12].Volynets О. V

The administration of the institution is responsible for development and implementation of internal control system. Internal control system organizationally must meet the size and specifics of the institution. As it's determined the internal control of entity should be performed independently and objectively. This organizational independence provides direct subordination and accountability of internal control department (controller) to the head of the institution.

The structural decisions in the implementation of the internal control system of the education institution are the establishment of internal audit department, which is endowed with the following functionality:

• to perform internal audits;

• to provide methodological assistance to subjects of internal control of education institution's structural units, to carry out explanatory work on issues of internal control organization;

• to provide organization of risk management procedure based on the expert opinions of internal control subjects as well as collection, systematization and analysis of relevant information;

• to form a plan on the implementation of measures of control and monitoring of their results introduction and to inform authorities of the education institution about the results of the actions.

The object of the internal control of public education institutions is its economic activity and measures to ensure the effective operation of internal control system (compliance with the principles of legality and effective use of public funds, achieving the results in accordance with established goals, tasks, and plans).

The scope of internal control in accordance with internal audit standards [12] covers the following areas:

• evaluation of the institution's activity on the effectiveness of the system of internal control, the degree of implementation and achievement of the objectives set in the strategic and annual plans, effectiveness of planning and execution of budget programs and the results of their implementation, quality of service and performance of supervisory functions, tasks defined by law, and risks which affect the institution's functions and tasks implementation (efficiency audit);

• evaluation of institution's activity in sense of legality and reliability of financial and budget reporting, accuracy of accounting;

• assessment of institution's activity in sense of compliance with legal requirements, plans, procedures, contracts on issues of the status of assets conservation, information and public property administration.

Internal control in public education institutions is based on the following principles:

• legality: compliance with requirements of the law, and with defined functions, processes and operations;

• objectivity: obtaining complete and accurate information, which is based on documentary and actual data and eliminates the influence of subjective factors;

• responsibilities and division of powers: the allocation of responsibilities between the subjects of internal control and delineating their responsibilities in the frameworks of functional powers in making decisions or performance of other actions;

• methodological unity: unity of rules, regulations and procedures when organizing internal control, which allow determining the quality and effectiveness of implementing the functions, processes and operations by the subjects of internal control, and ensuring maximum coverage with standardized controlling procedures of all aspects of their activities;

• balance: coordination of internal and external orientations of control actions to maintain the equilibrium of internal control;

• preventiveness: advance monitoring to prevent deviations from the standards;

• openness: introducing feedback mechanisms and ensuring the necessary degree of transparency in assessing internal controls.

Internal control can be carried out as planned or operational audits, monitoring of administrative work. Internal control in the form of planned audits is carried out in accordance with the approved graphic-plan, which provides periodicity and eliminates wasteful duplication of audits.

Internal control in the form of operational verifications is performed to establish the facts of violations, verify the information about violations indicated in the appeals of pupils and their parents or other individuals and organizations, and to resolve conflicts between members of the educational process.

Internal control in the form of monitoring involves the collection, systematic registration, processing and analysis of information on the organization and results of the educational process to effectively meet the challenges of quality administration of education (pupils' health, compliance with the regime, the executive discipline, educational and methodical maintenance, and diagnostics of pedagogical skills).

The process of internal control for its monitoring and ensuring its proper quality and control over results are subject to appropriate documentation. According to [12] there are the following documents on internal audit:

• provision of internal audit unit: the main task of the internal control unit (controller); rights and powers of the unit; subordination;

• job descriptions of employees of internal audit unit: tasks, functions and responsibilities of internal audit unit's staff, their rights, demands on education, knowledge, skills and experience provided by law for each structural unit of internal audit department; the right to unimpeded access of employees of internal audit to documents, information and databases relating to internal audit;

• internal documents on internal audit: procedure for planning and conducting internal audits, documentation, and implementation of their results, and on the decision of the unit's head, other aspects of internal audit.

Within the tasks and powers set by the law the subjects of the internal control determine:

• strategic goals: goals set by administrative regulations to be achieved on the results of the relevant process;

• operating goals: goals that are determined each year in the Plan on implementation of control measures and monitoring of their results implementation and are generated with taking into account the following principles:

• concreteness that is to clearly define the final result of the achievement of operational objectives;

• measurability that is to define operational objectives on the basis of possibility to assess their achievement with use of quantitative and qualitative indicators;

• attainability that provides determining operational purposes in limits of available resources (human, financial, material, etc.);

• realism, which means that the subjects of the internal control identify only those operational goals that are within their authority and responsibility;

• certainty in time, which provides planning of clear terms for achieving operational objectives.

During internal control in a secondary education institution the special attention is paid to:

• implementation of curricula and syllabi, quality of knowledge and skills of pupils;

• compliance with the State standard of secondary education;

• quality and efficiency of the teaching staff;

• enforcing child protection, sanitary and fire regulations, safety requirements;

• rights of pupils to be protected from all forms of physical or mental harm to health, on preventing the formation of bad habits in them;

• organization of nutrition and health care.

One of the important objectives of the internal control system is to identify risks, evaluate their levels and the impact on the institution's finance, and to develop measures reducing the risk to an acceptable level.

Risks are potential events that negatively affect the achievement of the objectives, exercising functions, processes and operations by the subjects of internal control or will have adverse financial, economic, legal and/or other effects.

Identification of risks is activity of internal control subjects on determination and description of possible events that adversely affect their ability to perform the relevant processes.

Risks are divided into:

• external: potential events, the probability of which is not related to the implementation of relevant processes and operations by subjects of internal control. External risks include: legal, operational, technological, software and hardware ones;

• internal: potential events, the probability of which is directly linked to the implementation of relevant processes and operations by subjects of internal control. The internal risks include: legal, operational and technological, software and hardware, personnel and financial and business ones.

Risk assessment involves determining the probability of the events and the size of their effects that adversely affect:

• tasks implementation and achieving the objectives of the institution, as defined in the strategic and annual plans;

• effectiveness of planning, implementation and result of implementing the planned indexes;

• quality of educational services and implementation of control and supervisory functions, and tasks set for the institution by legislation;

• state of preservation of assets;

• state of the institution's property management;

• accuracy of accounting and financial reporting reliability.

Risk assessment involves determining the level of risk based on expert opinions of internal control subjects by criteria of the probability of risks and their impact on the ability of internal control subjects to achieve certain strategic objectives.

Risk management involves activities related to the definition (identification) and assessment of risks for the earliest possible detection of violations and deficiencies, inefficient use of resources in implementing the functions, processes and operations by internal control subjects. These include: analysis of the performance of the education institution; collection, systematization and analysis of information on performed identification and risk assessment; development of measures to control and monitor the implementation of their results.

As part of the risk management, the department of internal control of the education institution performs the following actions:

• defining the list of risks and classifying each risk in terms of category and type of risk;

• risk assessments according to the criteria of the risk probability and its impact on the institution's ability to achieve certain strategic objectives;

• submitting information on risk identification and assessment to the head of the institution;

• submitting proposals on system of control and monitoring measures, and on their implementation and evaluation of their results.

Control measures are considered as complex of administrative actions that occur within the system of internal control to influence the identified risks. Monitoring measures include assessing the quality of the operation and monitoring results of control measures implementation.

Based on the results of the research we can formulate the following proposals to improve the internal control system of the education institution:

• an important step in implementing the internal control system of the education institution is the formation of internal documents, including Regulations on internal audit. The Regulations should include organizational structure of internal control, powers, tasks and subordination of the internal control department, strategic and operating objectives of the internal control system, tasks and rules of procedure;

• the quality of the internal control department's operation will ensure proper level of qualifications and practical skills of employees of the internal control department, so criteria system for the selection of personnel, requirements to the qualifications and practical experience, testing, advanced training should be developed;

• a set of professional abilities and skills of internal controllers and their functional responsibilities should be set out in the job description for these workers;

• internal control objects should be identified, methods of their audit by internal controllers should be developed and adopted;

• an important area of internal control of public education institution is to identify, evaluate and eliminate risks of operation, so it is important to determine the list of possible risks, to develop methods identifying and assessing them, to identify possible standard measures eliminating risks;

• development of system for monitoring and control of the efficiency of the internal control system of the education institution, including the definition and approval of criteria and methods to evaluate the effectiveness of internal control system;

• formation of the procedures of institution's administration response to errors and violations, and cases of inefficient use of economic resources, identified by internal control department; organization of monitoring system for elimination of identified violations; prosecution of officials of the education institution.

Conclusions

Summarizing the results of the study we can make the following conclusions and generalizations:

- internal control as administrative function is a means of feedback between administration object and the subject of administration, informing about the real state of the object and the actual implementation of administrative decisions;

- priority directions to improve the internal control system is adequate approach to the recruitment of internal controllers personnel, their qualifications and professional skills, and the development of methods to verify the defined objects of internal control;

- special attention has to be paid to development of internal procedures for identification and assessment of the available risks of the activity, formation of standard procedures to eliminate or reduce the identified risks' level;

organizing the control and monitoring of internal control department's activities and implementation of the results of its operations is essential for ensuring the proper performance of it.