The Role of Systematic Internal Control and Audit in Reducing Management Risk at Hungarian Local Governments

Abstract

The financial risks to the local government sector have recently reached a level that presents a major threat not only to local governments but to the entire national economy. This paper therefore aims to point out the significance of internal controls, the absence or insufficiency of which is a significant factor in the deterioration of the financial situation and assets of individual local government and thus, indirectly, in increasing risks at the national level. The method of risk analysis was used to select twelve Hungarian local governments for an examination of the design and operation of internal controls in individual processes of asset management. The audits found that in a number of local governments, internal controls had not been incorporated into processes, or had been inadequate, preventing the controls from performing their functions.