The word audit often makes employees and directors nervous. Why is someone looking into what we do? What is going to be found? What changes are coming? For any audit to be successful, leadership must be open to discussing tough issues and taking advantage of opportunities presented to improve the organization’s overall functioning. If a corporation has a qualified auditor on their staff, they will conduct the internal audit. If there is not a qualified individual on their team, an independent auditor can be hired to perform the task. 

According to The Institute of Internal Auditors, “Internal auditing is an independent, objective assurance and consulting activity designed to add values and improve an organization’s operations.” Most audits examine the financial reporting of an organization and are conducted on an annual basis. Internal audits can also give insight into other non-financial matters such as daily operations, business processes, reporting and key performance indicators (KPI’s). All companies should perform internal audits yearly to ensure best practices. 

Brief History of the Internal Audit 

The theory of internal auditing was conceived by Lawrence Sawyer, “the father of modern internal auditing” and the process has evolved steadily since World War II. In 2002, the United States implemented the Sarbans-Oxley Act (SOX Act of 2002). The SOX Act was a response to many of the financial scandals of publicly traded companies such as Enron and World Com in the early 2000s. This act helps to protect investors from fraudulent financial reporting by corporations by creating strict rules for accountants, auditors, and corporate officers by imposing more stringent record keeping requirements. 

Internal Audit, what is it? 

Unlike some audits, such as those performed by the IRS, an internal audit should not be scary. The purpose is to make the company better and ensure that financial records are being properly recorded. An internal audit can help a corporation by catching any discrepancies, avoiding trouble with the IRS or investors. The report is given directly to management or the board of directors. Results of an internal audit can be used to better examine business practices, make managerial changes, and improve processes and internal controls. 

Many companies use internal auditing to identify risk management activities. This process identifies, analyzes, gathers information about and monitors strategic risks that could impact the organization’s ability to achieve its goals. Every company wants to avoid fraudulent activities and maximize their productivity. 

What Happens During the Audit? 

There is an information gathering phase, where the auditor will observe, take notes, and review company documents. Next, there will be a security portion of the assessment to test employee’s knowledge of company goals, safety standard and rules. The auditor will review local, state, and federal laws and policies to ensure the organization is meeting all these regulations. Fourth, they will verify and consult about any improvements and applications that can be updated. Lastly, there will be a set review period to see how well the company has been able to implement the findings from the audit. 

Internal Audit Planning 

The internal audit team should have a clear, concise plan about why a project or policy is being reviewed. Why was the project approved? Does the process support the organization’s goals and objectives? What risks does the audit address? Consider audit plans from the past. Were they successful? What were the previous results? Have there been any changes since the last audit? Is the new audit plan actionable? These basic questions will help to guide the audit team to complete a successful audit. 

Internal Auditor Responsibilities 

Internal auditors play a vital role in an organization’s success. They review all processes to report to all levels within the organization. Internal auditors have an especially important job to do. Their responsibilities include: 

• Offering Insight and Advice 
• Evaluating Risks 
• Assessing Controls 
• Ensuring Accuracy of financial records 

• Improving Operations 
• Promoting Ethical Behavior 
• Reviewing Processes and Procedures 
• Monitoring Compliance 
• Assuring Safeguards 

• Investigating Fraud 
• Communicating Results to Managers, Board Members, or Investors 

Maximize your Audit 

There should be straightforward, honest, and timely communication between you and your internal audit committee. The committee should be up to date about new laws or trends so they can effectively complete their tasks. You should discuss any relevant governance issues that need to be addressed. There needs to be training and a reporting process for any potential compliance issues that could arise. Internal auditing should focus on delivering results and implementing actions rather than just uncovering the problem. You can perform periodic surveys to determine future audit needs. 

The internal audit committee should be able to focus not just on past and current events, they should be prepping for any emerging trends or future risks. Come up with a game plan should any problems arise. This allows the audit committed to pivot and be more agile to change. 

Typically, the audit committee reviews findings every quarter or every six months. Increase the frequency of meetings and reviews and make information available to relevant parties. Consider investing in cloud-based audit software that updates regularly and can be accessed at any time. 

Finally, your organization will need to ensure proper resources to address any risks. This could be training programs, changing software permission settings, updating software, and reviewing data analytics. While your organization’s budget could affect access to resources, you can start small and add more tools as you grow. 

The Baird Audit Group 

While many companies have their own team of internal auditors, we at The Baird Audit Group offer independent auditing services that your company can utilize to complete your audit and financial needs.  

Efficiency + Effectiveness= Efficacy. Our audit professionals examine and evaluate the activities of your organization and perform an independent appraisal to review whether this be financial or non- financial. It is important for your organization to complete an internal audit annually to review financials, operations, and to identify risks. These audits can ensure your business is operating smoothly, prep your business for sale, or help strategize future endeavors. We want to be your partner in business and ensure your organization’s success!