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Benefits of Internal Auditing and Conducting Process-Based Audits

04 May 2022
What is the purpose of an internal audit and why is it important for your organisation to do them?

Audits identify how well risks are being managed by a company, whether the right processes are in place, and that procedures are being followed.

Internal Auditors check and evaluate the controls a company has in place. The role of an internal audit is to provide assurance that a company's risk management, governance, and internal control processes are operating effectively. Moreover, internal audits also prove to be a defence mechanism in detecting violations of laws, regulations, and provisions of contracts and agreements.

Internal auditing comprises of:

  • Processes used for planning, organizing, guiding, and supervising operations.

  • Systems used for measuring, reporting, and examining performance.

  • Appropriate actions were taken by the administration to augment risk management and increase the probability to achieve desired goals.

Internal auditing is often described as an independent and impartial assurance and often used as a consulting activity, which is premeditated to bring value and improve an organization’s actions. It also allows the business to achieve its purposes by delivering a systematic and well-ordered approach to their management systems.

The ultimate aim of this is to evaluate and enhance the effectiveness of risk management, control, and governance procedures. In other words, internal auditing is overall designed for monitoring the effectiveness of the internal control processes that have been traditionally instilled by management.

Step–by–Step Planning for conducting Internal Audits

  1. Planning: Detailed planning is the key to performing a successful internal audit. Commonly known factors like when, what and how will the audit be conducted. Most importantly, which part of the organisation is going to be audited. The more a leadership team spends time in planning a proper audit, the more flexibility will be seen in achieving good quality results and evocative audits.

  2. Preparation: The next step after planning is preparing. This includes constructing day-to-day operations. That is, when and which department will be evaluated and inspected. This step involves examining the results of internal audits performed previously.

  3. Perform: Once the required preparations have been made, it is time to perform the audit. This includes inspecting whether your organisation meets specific standards or requirements for certification or other necessary purposes. Auditors look for evidence and collect information from a variety of sources, for example, documentation, forms, and employee interviews. Once they’ve accumulated a record, then auditors begin their examination, calculation, and evaluation.

  4. Publishing: Once the internal auditors have finalised their audit, they publish all their conclusions in a report. This report pinpoints the issues deliberated and emphasises on key areas for attention or improvement. The findings of the audit report are then delivered and discussed with the management.

  5. Act: The final phase involves following the measures suggested by the auditors.

Audit frequency should also be influenced by the results of previous audits and any changes which you are aware of may affect the process. So, if you have a problematic process or area, it makes sense to audit it more frequently for a while until a solution is implemented and has been seen to be effective.

Internal audits are a great opportunity to spend some time investigating a specific process or area and evaluating its performance. It is an ideal way to find areas for improvement and fix potential issues before they occur.

Think of internal audits as keeping your finger on the pulse of your organisation. Internal audit findings must be reported to relevant management and naturally form part of the management review agenda. Where necessary, corrective actions must be taken without undue delay. If a long-term fix requires significant planning and maybe funding approval, consider whether a short-term fix is possible and appropriate.

Advantages of conducting internal audits

  • The greatest advantage of internal audit is that it helps in the management of the organisation effectively.

  • Internal audits will highlight any incorrect processes that are followed and help in rectifying the processes that lead to improvement in process efficiency.

  • As internal audits are performed at fixed intervals, management has the opportunity to review performance and take appropriate decisions regarding operational improvement.

  • Internal audits help keep employees alert about their responsibilities, which helps in improving their efficiency.

  • Internal audits help in determining areas that need improvement, and accordingly allocation of resources will be done that will be beneficial for the organisation.

Benefits of an Internal Audit:

Internal auditing adds value to your organization and its operations in many ways:

  • Enhancement in business operations, this includes decrement in errors and improved quality of performance.

  • Improved efficiency

  • Decreased cost, increased profit, improved cost recovery.

  • Controlled risk management.

  • Development of policy and procedures, for instance, the validation of documentation, and inclusion of any necessary details and data.

  • Better management communication and clarity. Appropriate hierarchy and frequency of communication within the organizational structure.

  • Increased regulatory compliance.

  • Improvement in preparation of reports and workflows.

Author - Diane Mitchell, NQA Regional Assessor