6 Must-know Facts About Internal Audits
Internal audits don’t seem like a natural fit for business, they can evoke a sense of fear and frustration, and seem to be a lot of work. Most employees find having someone review their activities unsettling, intimidating, or labour-intensive. So why do they? Internal audits are different from external audits and it is important for ensuring information security and regulatory compliance, evaluating company performance, and managing risk.
Internal audits are a helpful function for businesses of all types. In-depth knowledge about the role of internal audit, what to expect during an internal audit, and knowing the potential pitfalls to avoid will help your employees cooperate better with internal auditors. This also leads to maximizing the benefits of the internal audit exercise for growth and continuous improvement of your organization.
What is an internal audit?
An internal audit is an unbiased and independent assessment or evaluation of systems and processes of an organization. The purpose of conducting internal audits is to provide the senior management of an organization with an objective source of information on the organization’s risks, controls, operational effectiveness, and compliance with laws, regulations, or contractual obligations.
Routine internal audits keep a business, big or small, and all its employees at the top of their game. Internal audits are crucial for all organizations, no matter which industry, whether that be financial institutions, food industry, IT firms, and healthcare providers. They are positive exercises for the businesses aimed at evaluating performance and identifying ways to improve, evolve, and be ‘future fit’.
The following are the vital facts that can help enhance your knowledge about internal audits, how they work, and how to get the most out of them.
1. Who performs the audit?
The internal auditors are generally undertaken by the employees of the organization itself. They are trained in audit techniques, but they should also be familiar with the operation and processes in order to deep dive into activities and be familiar with the risks and controls of the organization. Whilst auditors should be familiar with what they are auditing, they should not audit their own work, so they can remain objective in what they find. professionals employed by companies to provide objective and independent evaluations of financial and operational business activities. Their area of evaluation also includes corporate governance.
The main preference of an internal auditor is to confirm compliance, and if there are issues, to identify and correct them before they become a problem for customers or a compliance issue. They ensure that business activities being performed according to the policies and procedures of the company.
2. Who is the audit reported to?
The internal audit is primarily reported to members of the management of the company. The results reported by an internal audit are valuable tools for confirming compliance, and for making decisions on improvement. Internal audit reports are also a valuable tool for confirming that where changes, improvements, or expansions have been undertaken, that changes have been effectively implemented, are still in place, and have not impacted compliance.
3. What does an internal audit cover?
The main tasks covered in an internal audit include, and are not limited to:
- Perform risk assessments for all significant areas in the organization
- Preparation of an annual audit plan ensuring your audit resources is targeted at the risk and importance of the business processes.
- Ensure all risks are communicated to the audit committee and management
- Perform internal audit activities and timely reporting
- Report audit findings and ensure issues identified have been followed up and closed out
- Report significant issues to the audit committee and management
4. When are the types of internal audit appropriate?
The following are the major types of internal audits that an organization may undertake.
Compliance audits: evaluate the compliance of business processes and activities with applicable law, regulations, policies, and procedures or customer contract requirements. They are vital because failing to comply with laws may result in costly fines, prevent a company from doing business in certain jurisdictions, or loss of lucrative contracts.
Environmental audits: target evaluating the impact of the company’s operations on the environment. They may include assessing the compliance of the business activities with environmental laws and regulations.
Information Technology audits: evaluate information systems and infrastructure to ensure the accuracy of their processing, security, and intellectual property.
Operational audits: targeted to assess the organization’s control mechanism for overall efficiency and reliability
Performance audits: evaluate performance and efficiency to ensure the organization is meeting standards set to achieve goals and objectives.
5. Why do organizations have internal audits?
Internal audits play a critical role in helping organizations to reach their potential. It is important to find where there may be weaknesses in processes and internal controls and safeguard against potential fraud, waste, or abuse of resources, and ensure compliance with laws and regulations. Internal audits assist organizations to define areas where they could improve and provide information it needs to accomplish its goals.
Internal audits are like a self-performance check that every organization should conduct to enhance the services and products it provides to customers and end-users.
6. What value does an internal audit provide to an organization?
Many organizations view internal audits as a cost to their company that does not generate any revenue. This is one reason why smaller organizations may find themselves choosing not to implement internal audits, or to limit them to a bare minimum. However, internal audits can prove profoundly important to the survival and growth of an organization. They can lead to operational efficiency, strategic growth, and employee and customer satisfaction.
However scary, time-consuming, or mundane the internal audits may seem, they can be the stepping stones to the success of your organization. The key is to not see them as a chore, but to carefully plan and conduct them and to leverage internal audits into making your organization prosper. It is also worth thinking about the best way to conduct internal audit management, and whether automation and IT solutions may assist you in capturing and reporting internal audit information.
Compliance audit management systems can help your organization effectively manage all the internal audit processes, activities, and produce robust reports that serve the purpose of the internal audit function. The management can use the data-driven insights in these reports to make informed decisions that catapult growth.