It is easy for many smaller organisations to overlook the importance of formal quality management processes such as internal audits. Many consider internal audit management to be something only larger and more complicated entities need to commit to; in truth though, organisations of all sizes can benefit from this level of attention being paid to their critical processes. An audit report plays a crucial role in communicating the findings of internal audits to stakeholders, including management and external parties, ensuring transparency and guiding next steps.
What is Internal Audit Management?
Internal audit management is the systematic process of organising, executing, and overseeing internal audits. These audits are thorough, independent evaluations of an organisation’s operations, policies, procedures, and internal controls. The goal of internal audit management is to ensure compliance with regulations, enhance operational efficiency, and mitigate risks, ultimately supporting the organisation’s overall governance and accountability.
A compliance audit is crucial in ensuring that organisations adhere to external regulations and internal policies, thereby mitigating legal risks and potential financial implications.
When an internal audit is done well, it can be a key tool in your efforts to clarify what is working well within your organisation, and where improvements need to be made. However, the steps you take to carry out your own business’s internal audit must be sensibly judged and proportionate.
Why is it important to conduct an internal audit?
As the term suggests, internal audits take place internally – that is, they are carried out within an organisation by someone employed there. They take the form of inspections or assessments geared towards determining how well or reliably the given organisation’s operational processes and procedures are working.
In contrast, an external audit is conducted by an independent party and is essential for providing a credible opinion on financial records, especially for public companies. External audits have distinct purposes and regulatory requirements that differentiate them from internal audits.
Internal auditing is a more formal, structured and systematic approach than simply vaguely ‘keeping an eye’ on how an organisation’s processes are doing. This especially disciplined nature of an internal audit helps to bring a series of advantages.
For example, internal audits could help to shed light on the major opportunities for improvement across your business’s processes, that you may not presently be taking. They can aid you in identifying the root causes of any operational or strategic problems, to give you greater insight into what needs to change in order to enhance your processes in the long run.
Having internal audits carried out at your business on a regular basis will help you pinpoint ways to save time, money and effort on your processes. It will also demonstrate to your personnel and the outside world that your organisation is committed to complying with the highest standards in relation to quality, health, safety, and environmental protection.
What steps should you follow in managing the internal audit process?
Effective internal audit management is likely to be more than just a brief quality control check. Getting your company’s internal auditing right will significantly help to optimise everything your organisation does, with suitably long-term benefits. Internal audit findings play a crucial role in identifying common issues and ensuring that management implements necessary changes based on these findings. The following tips and advice will help ensure you make the right moves.
1. Take responsibility for the provision of internal audits
If your organisation doesn’t yet have an internal audit management function, you should routinely review whether such a function might be needed.
While you may be more likely to decide in favour of carrying out internal audits if your organisation is larger, relatively complex or subject to certain especially pressing organisational risks, as we touched on above, those are not the only businesses that can benefit from regular internal auditing.
External auditors play a crucial role in collaboration with internal auditors and management, particularly in using technology to streamline the audit process.
In the event that your company does decide to obtain some level of internal audit capability, it must take ultimate responsibility for the work of that auditing, even if it outsources the auditing function to some degree. Your business will need to accept responsibility for the decision on whether to carry out internal auditing, as well as how such auditing is undertaken.
2. Set clear goals
Being clear about the goal for your company’s upcoming internal audit will greatly help you make the whole process worthwhile; after all, you won’t know whether the audit has been a success if you have no means of measuring that success. Any vagueness about the audit’s goal will also make it harder for you to put together a solid plan – for both the audit itself and the steps that follow.
An operational audit, which is a thorough examination of a company’s internal controls and procedures directly tied to its operations, aims to evaluate the efficiency and effectiveness of those operations.
So, be sure to ask yourself what you are going to do as part of the internal audit, and why you are conducting an audit in the first place. For instance, some organisations carry out internal audits with a particular view to determining how they can safely cut costs, while others may be looking to scrutinise their processes and how to potentially enhance them, at the same time as mitigating risks.
3. Determine the Scope of the Audit
Determining the scope of the audit is a crucial step in the internal audit process. This involves identifying the specific areas of the organisation that will be audited, as well as the objectives and methodology of the audit. The scope of the audit should be clearly defined and communicated to all stakeholders involved.
The scope of the audit should be aligned with the organisation’s overall goals and objectives. This ensures that the audit is relevant and adds value to the organisation. It should include a thorough review of the organisation’s internal controls and risk management processes, as these are critical areas that can significantly impact the organisation’s performance and compliance.
Flexibility is also key when defining the scope of the audit. The scope should be adaptable to allow for adjustments as needed, based on new information or changing circumstances. This flexibility ensures that the audit remains relevant and effective throughout the process.
Finally, the scope of the audit should be documented and approved by the internal audit committee. This formal approval process helps to ensure that all stakeholders are on the same page and that the audit is conducted in a structured and organised manner.
4. Prioritise
There can be endless volumes of information about any business’s operations that internal auditors will need to sift through. So, it couldn’t be more crucial to set out clear priorities. For this, it is important to look back at the broader objectives you have already decided on for the audit, so that you can decide which process components or risks require the most urgent attention.
A performance audit plays a crucial role in this process by assessing whether goals are being met and identifying underlying issues affecting performance.
5. Identify key people and stakeholders
For the internal audit to begin, you will need to be clear about who will be involved in this process. Once you have identified the key people and stakeholders – and the exact people you pick out will depend on such factors as the numbers of staff members, departments and sites within your organisation – you will be able to keep them suitably informed, so that they can take your audit into account.
Internal audit reports play a crucial role in identifying issues, assessing risks, and ensuring compliance within the organisation.
Knowing who the stakeholders are in your internal audit will also be invaluable for determining your audit’s scope and how much time will be needed to communicate with everyone involved.
6. Building the Internal Audit Team
Building a strong internal audit team is essential for effective internal audit management. The team should consist of individuals with the necessary skills, knowledge, and experience to perform the audit.
The internal audit team should have a deep understanding of the organisation’s operations and internal controls. This knowledge is crucial for identifying potential issues and areas for improvement. The team should also possess a mix of technical skills and soft skills, such as analytical thinking, attention to detail, and effective communication.
Independence and objectivity are critical attributes for the internal audit team. Team members should have no conflicts of interest and should be able to perform their duties without undue influence from other parts of the organisation. This independence helps to ensure that the audit findings are unbiased and credible.
Adequate resources and support are also necessary for the internal audit team to perform their duties effectively. This includes access to relevant information, tools, and training. The team should be accountable for the results of the audit and any recommendations made, ensuring that they take ownership of their work and strive for high-quality outcomes.
7. Risk Assessment and Audit Planning
Risk assessment and audit planning are critical components of the internal audit process. This involves identifying and assessing the risks associated with the organisation’s operations and internal controls, and developing a plan for the audit.
The risk assessment should be based on a thorough understanding of the organisation’s operations and internal controls. This involves identifying potential risks, evaluating their likelihood and impact, and prioritising them based on their significance. This comprehensive risk assessment helps to ensure that the audit focuses on the most critical areas.
Based on the results of the risk assessment, a detailed audit plan should be developed. The audit plan should include a clear scope, objectives, and methodology for the audit. It should outline the specific areas to be audited, the audit procedures to be followed, and the timeline for the audit.
The audit plan should be approved by the internal audit committee. This approval process helps to ensure that the audit is aligned with the organisation’s goals and that all stakeholders are aware of the audit’s objectives and scope. A well-developed audit plan provides a roadmap for the audit, helping to ensure that it is conducted in a structured and organised manner.
8. Ask the right questions
This is something else that needs to be considered in the early planning stages for your internal audit. The “right” questions to ask are naturally likely to differ across organisations and circumstances. Nonetheless, broad examples applicable to almost every internal audit include the likes of “what are we presently doing?”, “how are our current processes running?” and “what production objectives have we set, and how are we achieving them?”
It is important to understand the differences between internal and external audits, as they share similar goals but differ significantly in their execution and purpose. Internal audits are typically conducted by a company’s selected team to improve operations, while external audits involve an outside company assessing financial reporting for external stakeholders.
You might also ask how the agreements you have previously reached about your organisational processes are being monitored and safeguarded, and what – according to your team members – is currently working well, and what isn’t.
9. Record and report your findings
There will be a need for a formal audit report that encapsulates the procedures, findings, and recommended next steps arising from your organisation’s internal audit. Even before the reporting itself happens, decisions will need to be made on how frequently findings will be reported from internal auditing, and how the opinions of internal auditors will be expressed.
As for the reporting itself, at the very least, it should address significant risk exposures, risk-taking that goes beyond risk tolerance levels, and any control issues that are identified during the internal audit.
It should also be reported what progress has been made on the work carried out from the internal audit plan, and what issues of concern may have arisen with regard to staffing and resources for your company’s internal audit function.
10. Using Technology & Software for Internal Audits
Technology and software can play a significant role in internal audits, improving efficiency, effectiveness, and accuracy. Internal auditors can use various tools and software to support the audit process.
One of the key benefits of using technology in internal audits is the ability to automate routine tasks. Automation can reduce the risk of human error and free up auditors to focus on more complex and value-added activities. For example, audit management software can streamline the process of scheduling audits, tracking progress, and generating audit reports.
Technology can also be used to analyse large volumes of data quickly and accurately. Data analytics tools can help auditors identify patterns, trends, and anomalies that may indicate potential issues. This capability is particularly valuable in today’s data-driven business environment, where organisations generate vast amounts of data.
Improved communication and collaboration are other benefits of using software in internal audits. Collaboration tools can facilitate communication among internal auditors and stakeholders, ensuring that everyone is on the same page and that audit findings are shared promptly.
Technology can also support risk assessment and audit planning. Risk management software can help auditors identify and assess risks, prioritise them based on their significance, and develop a comprehensive audit plan. This capability helps to ensure that the audit is focused on the most critical areas and that it is conducted in a structured and organised manner.
Overall, the use of software can significantly enhance the efficiency and effectiveness of the internal audit process, helping organisations to achieve their audit objectives and improve their internal controls and risk management processes. For instance, our own Vision Pro platform, incorporates Audit Management software for hosting all your auditing templates or question sets. While the auditing process will not look exactly the same from one organisation to the next, Vision Pro Software offers broad benefits to maximise ease of use for every entity that depends on it – ranging from clear dashboards and automatic email alerts for overdue audits, to customised or adapted audits and a mobile app for collecting data on-site. Budgeting for repairs or replacements, scheduling maintenance and managing compliance are all part of the software package.
To learn more about our finely optimised audit management platform and how else Vision Pro can aid your organisation as it seeks to improve governance and compliance day by day, please do not hesitate to call one of our experts today.
