Implementing or Outsourcing an Internal Audit Function – Now may be the time!

Implementing or Outsourcing an Internal Audit Function – Now may be the time!

As a result of many individuals working from home due to the current pandemic, an internal audit function may be the solution to help the company’s management feel more at ease that the company is operating effectively, efficiently, and as intended by its stakeholders.

Monitoring the operation and control environment may be a difficult task for the company’s management. How do you know if your team is producing the same types of results or using the same protocols from home as if COVID-19 never happened? Having an efficient and effective internal audit performed is key in providing a continuous review of the effectiveness of risk management, internal control, and the governance process. Implementing or outsourcing an internal audit function may assist in accomplishing that goal.  Some advantages and limitations of an internal audit function include:

Advantages:

• Helps identify errors before an external audit or review
• May help reduce chances of fraud, as there is continuous monitoring
• Independent review of business activities to determine their accuracy, reliance, and completeness
• Assists in determining whether or not resources are being used properly
• Review of internal controls (segregation of duties, physical access controls, reconciliations, transaction and activity reviews, and information data processing reviews).
• Ensures adherence to the company’s policies, procedures, and regulatory requirements
• Asset protection and monitoring of misuse of assets
• Provides management a report of findings and recommendations
• Assists external audits

Limitations:

• Risk of assigning an inexperienced in-house internal auditor with insufficient technical knowledge
• Extra cost a company incurs
• Management not being responsive to correct errors found during an internal audit
• Time lag between financial transaction and actual audit
• Internal auditor overlooking errors during his or her audit

Examples

Are you pondering the need within your company? These are just a couple of real-world examples that illustrate the value of conducting an internal audit:

1. During review of the company’s expense account for corporate credit cards, it was discovered that several employees were using their corporate credit card for personal expenses.
2. During review of the company’s bank accounts it was discovered that there were several transactions in one bank account that had no supporting documentation. After further research, it was discovered that the Accounting Manager was stealing money from the account and concealing it with transactions through performing various general ledger entries. Nobody was reviewing what the Accounting Manager was doing.
   The impact of these protocol infractions and similar control function variations could certainly add up to affect your firm’s productivity. If you have no controls, you may not recognize the looming threat.

Should you lack qualified internal personnel to conduct your internal audit, here are a few hints on what to look for when choosing an outside resource:

• Does the auditor have a good understanding of the industry and in-depth knowledge of the applicable standards and regulatory requirements?
• Does the auditor have experience in the field and can share best practices?
• Does the auditor have the ability to provide consulting while performing audits?
• Does the auditor have a well-defined audit approach and risk-based thinking?
• Will the auditor develop an approach to be less invasive on company employees so they can perform their daily duties?
• Does the auditor have good verbal and written communication skills?
• Will the auditor do what they say they will – and in an efficient manner?

Now may be the time to start 2021 with a fresh look at your company’s internal controls.