3 Reasons Why You Should Consider an Internal Audit
Often overlooked by businesses, internal audits provide many crucial functions to the company and its owners. According to The Institute of Internal Auditors “internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” It is often seen that audits are only for large enterprise companies. However, small businesses may require an internal audit even more than larger companies. The reason for this is because a small business (or any business in fact) cannot afford employee fraud, waste or government fines such as penalties and accumulated interests. An internal audit provides a business a more defined scope for identifying and preventing very crucial business failures. After all isn’t that why you are in business anyways? To strive, succeed, reduce failure, maintain stability, and growth? We will take a look at some of these important issues internal audits address.
Fraud
It’s interesting to note that millions of dollars are lost by small businesses every year due to employee theft. Some types of fraud committed by employees include check tampering, cash theft, skimming payments from customers, and improper payroll transactions. This is where the importance of policies comes into play and it can be used to design an internal audit policy or perform audits to combat these issues. Also, when implemented properly it provides a layer of protection and sends indirect signals to both company vendors and employees that fraud will be detected quickly and won’t be tolerated. Many cases of fraud are detected by analysis of ratios and changes that deviate from a defined baseline. Due to the prevalence of fraud, many companies will have net gains in bottom line profits from an investment in a strong internal audit program.
Maintaining Internal Controls
Designing various policies is the cornerstone of developing objectives moving forward in any organization. The same applies for an internal audit policy as it’s performed by a team with the goal of loss prevention. The internal audit function aids an organization in protecting against both current and emerging risks, such as those related to new technology. This constant monitoring of controls can enable industries with a more comprehensive plan and review. An internal compliance review can provide a vast degree of benefits such as a systematic, independent, and documented approach to examining internal controls, physical and system security, and processes for daily operations against best practices, contractual obligations, and established policies, procedures, and other requirements.
Efficiency
In today’s competitive world, efficiency is very critical and may determine a business’s success or failure against other competitors. Ineffective business strategies and operations can thwart a business’s opportunity for growth and add overhead without converting to profit. An operational audit may expose flaws and inefficiencies in a business’s operations. An internal audit can grant companies access to independent consultants with extensive knowledge within an industry and utilizing years of experience to support an internal audit function within an organization. It’s always recommended to get various professional perspectives to aid in improving various functions of an industry. Moreover, the independent audit function often results in the development of benchmarks, which management and employees can use as a standard to measure a company’s performance.
All the aforementioned points address key reasons to consider an internal audit, but it is not limited to only those points as there are many other benefits and factors to consider. Companies are looking into expanding by integrating an internal audit department, however many of them may not have the size and cash flow to support a full-time audit staff. Even larger organizations nowadays use a combination of employee and consultant internal auditors which provides them the competitive edge of flexibility with respect to expenditures in this area. At the end of the day it is pertinent to remember that an audit review allows an unbiased assessment specific to the organization’s industry of operation. This in turn would allow for new ideas to be communicated to improve efficiency and effectiveness of operation, improve internal controls, and reduce risk.
References
Gray, K. (2014). The Benefits of Outsourcing Internal Auditing. Retrieved from http://www.lowersriskgroup.com/blog/2014/09/30/outsourcing-internal-auditing/
Lowers, M. (2015). The Essential Role of Internal Audits in Fraud Control. Retrieved from http://www.lowersriskgroup.com/blog/2015/01/27/internal-audits-fraud-control/