Document as of April 29, 2013

RESOLUTION OF THE BOARD OF THE CENTRAL BANK OF THE REPUBLIC OF UZBEKISTAN

230 Approval of the Regulation on Requirements for the Internal Audit Service of Microcredit Organizations by the Central Bank

Registered by the Ministry of Justice of the Republic of Uzbekistan on April 25, 2013, Registration No. 2453

In accordance with the laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 1995, No. 12, Article 247), "On Microcredit Organizations" (Collection of Legislation of the Republic of Uzbekistan, 2006, No. 37-38, Article 372), and "On Amendments and Additions to Certain Legislative Acts of the Republic of Uzbekistan" (Collection of Legislation of the Republic of Uzbekistan, 2013, No. 1, Article 1), the Board of the Central Bank of the Republic of Uzbekistan resolves:

Approve the Regulation on Requirements for the Internal Audit Service of Microcredit Organizations by the Central Bank in accordance with the Appendix.
This resolution enters into force from the date of its official publication.

Chairman of the Central Bank
F. MULLAJONOV

Tashkent,
March 16, 2013,
No. 6/2

Appendix
to the Resolution No. 6/2 of the Board of the Central Bank of the Republic of Uzbekistan dated March 16, 2013

REGULATION

on Requirements for the Internal Audit Service of Microcredit Organizations by the Central Bank

This Regulation establishes the requirements for organizing an internal audit service in microcredit organizations with a balance sheet asset value exceeding one billion som, as well as the methodological foundations for organizing its activities, in accordance with the laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" (Information Bulletin of the Oliy Majlis of the Republic of Uzbekistan, 1995, No. 12, Article 247), "On Microcredit Organizations" (Collection of Legislation of the Republic of Uzbekistan, 2006, No. 37-38, Article 372), and "On Amendments and Additions to Certain Legislative Acts of the Republic of Uzbekistan" (Collection of Legislation of the Republic of Uzbekistan, 2013, No. 1, Article 1).

Chapter 1. General Provisions

The following main concepts are used in this Regulation:
internal audit – the activity of the internal audit service of a microcredit organization, which is a controlling and evaluating body that monitors and checks compliance with the legislation of the Republic of Uzbekistan, constituent documents, and internal documents of the executive body and branches of the microcredit organization, rules and procedures for carrying out financial and economic operations, full and accurate reflection of information in accounting and reporting, compliance with corporate governance principles, as well as the preservation of assets; internal audit service – a structural subdivision of a microcredit organization that conducts internal audits, established by the decision of the senior management body of the microcredit organization, taking into account the requirements of this Regulation.
Each microcredit organization with a balance sheet asset value exceeding one billion som must organize an internal audit service, as well as develop and implement the Regulation on the Internal Audit Service approved by the senior management body of the microcredit organization and the job descriptions of the internal audit service employees.
The internal audit service conducts its activities on the basis of this Regulation and other legislative acts.

Chapter 2. Objectives, Main Tasks, and Functions of the Internal Audit Service

The internal audit service is established to assist the senior management body of the microcredit organization in ensuring its effective operation by conducting internal audits and providing objective analysis, evaluation, recommendations, and proposals regarding the results of internal audits to the management bodies of the microcredit organization.
The following are considered the main tasks of the internal audit service:

providing the senior management body of the microcredit organization with reliable information and preparing proposals for improving the activities of the microcredit organization based on the results of internal audits;
promptly submitting recommendations to the management bodies of the microcredit organization regarding the elimination of deficiencies identified during the internal audit process and monitoring their elimination.

The following are considered the main functions of the internal audit service:

conducting internal audits by carrying out relevant inspections in the directions specified in paragraph 20 of this Regulation in accordance with the audit plan;
conducting current audit inspections regarding the accuracy and reliability of the financial reports (monthly, quarterly, annual) of the microcredit organization;
conducting expertise on the compliance of microfinance service contracts and other economic contracts concluded by the microcredit organization with legislative acts;
providing methodological assistance to the structural subdivisions of the microcredit organization in maintaining accounting and preparing financial reports, and advising them on laws and other legislative acts related to finance, taxation, banking, and the activities of microcredit organizations;
assisting the senior management body of the microcredit organization in developing technical assignments for external audit inspections, selecting an external audit organization for conducting audit inspections, and evaluating the proposals of external audit organizations;
participating in the development of internal normative documents of the microcredit organization.

Chapter 3. Rights and Obligations of the Internal Audit Service

The internal audit service has the following rights in the process of conducting internal audits:

demand from the executive body and employees of the microcredit organization all necessary documents related to the activities of the microcredit organization or the subject of the audit (managerial orders, instructions, decisions of management bodies, reference materials, calculations, and other documents);
obtain oral and written explanations from the executive body and employees of the microcredit organization regarding arising questions;
obtain copies of necessary documents;
obtain original copies of documents (if there is suspicion that they will be stored in the future) in the established procedure when necessary;
monitor the implementation of measures to eliminate rules and violations identified during the inspection process after the audit inspection is completed.

The internal audit service may also have other rights in accordance with legislative acts and the constituent documents of the microcredit organization.

The internal audit service has the following obligations:

comply with the requirements of this Regulation and other legislative acts in conducting internal audits;
prepare reports in accordance with the requirements specified in paragraphs 21–27 of this Regulation;
check the reliability of financial and statistical reporting indicators;
maintain the confidentiality of information obtained in conducting internal audits;
immediately notify the senior management body of the microcredit organization and record the relevant entry in the audit report if situations indicating damage to the microcredit organization by its officials and employees are identified;
participate in inventory of assets and monitor the timely implementation of its inventory in the manner established by legislative acts.

The internal audit service may also have other obligations in accordance with legislative acts and the constituent documents of the microcredit organization.

Chapter 4. Requirements for Employees of the Internal Audit Service

Employees of the internal audit service must meet the following requirements:

have higher economic education obtained at a higher education institution of the Republic of Uzbekistan or at a foreign state educational institution recognized as equivalent to education in the Republic of Uzbekistan in accordance with the legislative acts of the Republic of Uzbekistan, or have an auditor qualification certificate from a specially authorized state body;
have at least two years of practical work experience in banking, microfinance, accounting, auditing, finance, or tax control (including on a part-time basis);
have sufficient knowledge of legislative acts related to the activities of microcredit organizations, including knowledge of the normative legal acts of the Central Bank;
have knowledge in applying the rules of the established accounting system in the republic and generally accepted international standards for accounting and auditing.

The senior management body of the microcredit organization ensures the hiring of qualified and experienced specialists for the internal audit service and establishes direct supervision over their work activities.
The number of employees of the internal audit service must be sufficient to effectively perform internal audit tasks.
If a position in the internal audit service becomes vacant, the senior management body of the microcredit organization must hire another employee for this position within one month.
The professional competence of employees of the internal audit service is continuously improved through regular training at relevant educational institutions.
The professional skills of employees of the internal audit service in knowing the requirements of legislative acts, selecting information, conducting inspections, and evaluating and preparing conclusions are assessed annually by a commission elected among the founders (participants) of the microcredit organization by the senior management body of the microcredit organization or by its decision.

Chapter 5. Independence of the Internal Audit Service

The internal audit service is independent and is directly subordinate to the senior management body of the microcredit organization.
The appointment and dismissal of the head and employees of the internal audit service from their positions, as well as the determination of their salary and other payments, are carried out in accordance with the decision of the senior management body of the microcredit organization.
Employees of the internal audit service must be independent of the activities being inspected by them.

Chapter 6. Main Requirements for Conducting Internal Audits and Preparing Summary Reports on the Results of Their Conduct

Internal audits are conducted by employees of the internal audit service only through the inspection and monitoring of the state of internal control, in accordance with the audit plan approved by the senior management body of the microcredit organization, every quarter of the year and at the end of the reporting year within 10 days after the end of the period being inspected. A detailed audit program is developed based on the audit plan and the requirements of this Regulation. Responsibility for developing and implementing the audit program is placed on the internal audit service.
To ensure the effectiveness of the work of the internal audit service, the audit plan must be reviewed at least once a year by the senior management body of the microcredit organization and approved by January 1 of the relevant year.
Internal audit:

checks the fulfillment of the approved business plan;
checks compliance with corporate governance principles;
checks the state of accounting and financial reporting;
checks the correct calculation and payment of taxes and other mandatory payments;
checks compliance with legislative acts in carrying out financial and economic activities;
checks the state of assets;
is conducted only by employees of the internal audit service through inspection and monitoring of the state of internal control.

Reports are prepared regarding the results of conducted internal audit inspections, signed directly by the employee(s) who conducted them.

In this regard:

a) The report on the results of checking the fulfillment of the business plan must include:

analysis of quantitative and qualitative indicators of its fulfillment;
description of identified reasons if its fulfillment is not ensured;

b) The report on the results of checking compliance with corporate governance principles must include:

analysis of the effectiveness of decisions adopted by the management bodies of the microcredit organization and compliance with the legal rights and interests of the founders (participants) of the microcredit organization;
description of cases of violation of legislative acts in the field of corporate governance (compliance with constituent documents, holding general meetings and meetings of the management bodies of the microcredit organization, correct calculation and timely payment of dividends, etc.);

c) The report on the results of checking the state of accounting and financial reporting of the microcredit organization must include:

assessment of compliance with the established procedure for maintaining accounting and preparing financial reports;
assessment of the timely, full, and accurate reflection in accounting and financial reports of financial and economic operations carried out by the microcredit organization;
description of violations of the established procedure for maintaining accounting and preparing financial reports;

d) The report on the results of checking the correct calculation and payment of taxes and other mandatory payments must include:

assessment of the correctness of calculations of taxes and mandatory payments prepared and submitted to the relevant bodies;

e) The report on the results of checking the state of assets must include information on the justification of asset inventory, as well as their nature, actual existence, and preservation;

f) The report on the results of checking the state of internal control must include:

description of the internal control system and existing deficiencies in its operation;
information on the state of executive discipline in the structural subdivisions of the microcredit organization.

All reports on conducted audit inspections must include a final section evaluating the activities of the executive body and structural subdivisions of the microcredit organization, recommendations for eliminating identified deviations and violations, and a complete set of approving documents.
A summary report is prepared, signed by the head (employee) of the internal audit service, based on the results of conducted internal audits, in accordance with paragraphs 20, 21, and 22 of this Regulation.
The summary report must include:

an analytical section;
a final section;
a complete set of approving documents.

The analytical section of the summary report must include generalized information regarding the results of inspections conducted by internal audit employees in accordance with paragraphs 20, 21, and 22 of this Regulation.
The final section of the summary report must include:

a general assessment of the activities of the executive body and structural subdivisions of the microcredit organization;
recommendations of the internal audit service for eliminating identified deviations and violations, as well as generalized proposals for increasing the efficiency of the financial and economic activities of the microcredit organization and improving corporate governance.

The summary report must be completed within 5 days after the completion of the internal audit.
The summary report must be submitted directly to the senior management body of the microcredit organization for its review and subsequent approval. After the summary report is approved, one copy is submitted to the executive body of the microcredit organization.
The executive body of the microcredit organization must take measures to eliminate deficiencies identified as a result of audit inspections.

Chapter 7. Liability of the Internal Audit Service

Employees of the internal audit service are liable for:

distorting the results of inspections they conducted;
failing to maintain the confidentiality of information constituting the secret of the microcredit organization provided to them or made known to them in the process of performing their service duties;
failing to ensure the storage and return of obtained documents.

The internal audit service is liable for evaluating measures taken to eliminate violations identified during audit inspections and to increase the efficiency of the financial and economic activities of the microcredit organization.

Chapter 8. Final Provisions

The senior management body of the microcredit organization reviews the report of the internal audit service on the results of inspections every quarter and takes measures to eliminate identified deficiencies and increase the efficiency of the financial and economic activities of the microcredit organization.
The Central Bank has the right to obtain from the microcredit organization reports on inspections conducted by the internal audit service and other information related to them when necessary.
Persons guilty of violating this Regulation are liable in the manner established by legislative acts.

Collection of Legislation of the Republic of Uzbekistan, 2013

Approval of the Regulation on Requirements for the Internal Audit Service of Microcredit Organizations by the Central Bank