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Internal Audit of the

Estonian Financial Supervisory Authority (EFSA)

Raivo LinnasInternal Auditor

Tallinn, Estonia – June 29, 2004

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Curriculum Vitae - I

From 01/2002 – Internal Auditor of the EFSA.

10/1998 – 01/2002 – Head of Performance Audit Department, Deputy Auditor General, The State Audit Office.

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Curriculum Vitae - II

08/1994 – 07/1998 – Chairman, Director 08/1994 – 07/1998 – Chairman, Director General, and Member of Management General, and Member of Management Board in 2 Insurance Companies;Board in 2 Insurance Companies;

09/1993 – 05/1994 – Vice Chairman, 09/1993 – 05/1994 – Vice Chairman, Member of Board of the Eesti Member of Board of the Eesti Sotsiaalpank.Sotsiaalpank.

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Curriculum Vitae - IIIFrom 04/2004 – Affiliate Member of the

IIA of UK and Ireland.From 1985 - Dipl. Eng.Former Lecturer of the Estonian

Business School.

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About the EFSA - IEstablished on 01.01.2002;An agency created by the Riigikogu; With autonomous competence and a

separate budget and management; Independent in the conduct of financial

supervision; United Financial Supervision Authority;The Financial Supervision Authority Act.

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About the EFSA - IIAbout 65 Employees;The Council (6 members, including

Ministry of Finance, GBoE)The Management Board (5 members);8 Departments, IA, IS, PR.About 70 Entities to be Supervised, incl

Issuers.Budget of 2004 – circa 2.7 million EUR.

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Place of Internal Audit Unit in the EFSA Directly accountable to the

Management Board. No statutory links with Supervisory

Council. No Audit Committee.

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Legal Framework

FSA § 18.3.9;IA Reglement (Charter);Job Description of IA;Code of Ethics of IA;Contract of Employment of IA.Fixed-term Contract for 2+2 years.

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Mission

To help Management Board achieve goals and objectives in best way

with most reasonable consumption of resources.

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Goals and ObjectivesTo add value and develop the EFSA’s:

Management and Organizational Culture; and

Control Environment.To evaluate and improve the

effectiveness of risk management, control and governance processes.

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Tasks and Responsibilities of IA

Internal Audit Function;Handling of Conflict of Interests Issues; Risk Management Function

(secondary);Promote Quality Management;Promote Appropriate Ethics and Values

within the EFSA.

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Rights of IA - I

To be Independent in Planning, Scoping and Performing Audits and Investigations;

Immidiate Direct Access to CMB and MB in Corpore;

Access to all Files, Accounts, Processes, Property and Data.

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Rights of IA - II

Interview all Staff, incl Members of Management Board (MMB);

Interview all Contractors and Representatives of Entities Under Supervision;

Take Part in meetings of MB and other relevant meetings;

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Rights of IA - IIIReject all tasks in case of risk of

incompetence, conflict of interests or unobjectivity;

Contract Independent External Expert(s);Involve Personnel of EFSA in Audits and

Investigations;Continuing development of knowledge,

skills, and other competencies.

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Scope

All Fields of Activity of the EFSA;All functions and projects;All systems and processes;Entire Staff, incl MMB;All Structural Units.

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Approach

Risk Based.Implementing The IIA Internal Audit

Standards as well as possible.No full compliance with the IIA IAS as of

today.

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Planning

1. Strategic Plan (3-5 years);2. Quarterly Plan; (Time-Resource Based)3. Plan of Particular Audit.

SP and QP to be Confirmed by MB.

PPA to be Consulted with Chairman.

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Reporting

The Case Report of Audit Results to the CMB and/or MB.

Quarterly Report to the MB.Annual Report of Activity to the MB.Annual Report of Self-Assessment to

the CMB.

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Content of QR - I

I Report of Most Important Activities (Execution vs Plans).

II Observations of Most Important Risks.III Report of All Activities by Areas of

Responsibility. (Execution vs Plans).

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II Observations of Most Important Risks - IRisks of Communication and

Disclosure;Financial Risks;Risks of Planning and Budgeting; Risks of Unachivement of Goals and

Objectives;Risks of Image;

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II Observations of Most Important Risks - II

Risks of Supervision;Risks of Handling Confidential Information;Observations on Risk Management;Observations on Control Environment;Observations on Corporate Governance;Observations on Conflict of Interests Issues;Observations on Fraud and Misusement;Varie.

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Assessment

Self-Assessment of Each Particular Audit.

Annual Self-Assessment. Annual Internal Assessment.Annual Appraisal. External Assessment (At once in 3

years).

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Audit Process

5 Stages and 12 StepsPlanning (4 Steps);Conducting (1 Step);Drafting Results (3 Steps);Disclosure (1 Step);Assessment (2 Steps);Follow-up (1 Step).

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Risks of Particular ModelRisk of Discontinuity;Risk of Incompetence;Risk of Independence;Risk of Divisibility;Risk of Shortage of Ideas.No Time for Deeper and Longer

Engagements.

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Strengths

Clear Responsibility.Efficiency of Ressource Consumption.No Opposition with MB.

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Audit failing

Standardized and Formalized;Traditional;Digital.

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Thank you very much for your Thank you very much for your attentionattention!!