When any organisation grows beyond a certain size, it becomes increasingly difficult for Top Management to sustain the same level of personal involvement to ensure that all its business objectives are met efficiently and effectively. A Management Audit function more particularly known as Internal Audit function, if properly structured and resourced can serve as a valuable tool to Top Management and the Directors in discharging their responsibilities. An Internal Audit function should be established within the organisation either internally or through an outsourcing arrangement, or a combination of these two options.
Internal Audits – A powerful Management Tool
A strong Internal Audit Department is a critical factor in ensuring that the relevant business risks and vulnerabilities of the organisation are identified and promptly brought to the attention of the Management, so that any corrective action that may be required can be taken. In addition, a technically strong Internal Audit function aligned with Management’s strategies could add value in a variety of ways, including:
- Assisting with the early identification of any new or emerging business risks to the organisation.
- Strengthening the internal controls over assets and increasing the reliability and quality of accounting records,
- Strengthening the organisation’s internal controls and reducing the time spent by Management in the development of policies and procedures to ensure the reliability of accounting information
- Developing and implementing methodologies to monitor potential non-compliance with policies of the organisation or other problems that require timely investigation (e.g., exception reporting);
- Assisting Management with the analysis and implementation of new accounting and reporting requirements;
The benefits that can be derived from an Internal Audit function can quickly exceed the cost of the additional resources.
How can an Internal Audit Function benefit Top Management?
A competent and professionally objective Internal Audit function can provide considerable benefits as a service to all levels of Management. Some of the principle benefits are;
- Provides independent opinion on the integrity, reliability and relevance of management information.
- Provides assurance on controls over the protection of assets and management of liabilities.
- Provides assurance on compliance with corporate policies and external regulations
- Improves business performance through greater efficiency.
- Reduces risk of fraud.
Internal Audit Procedure and Approach
A typical tasks to be carried out under internal audit Procedure is follows.
- Monitor implementation of the system of internal controls
- Review the satisfactory operations of the control systems as laid down.
- Review compliance of such procedures as laid down.
- Advice on inadequacies or inefficiencies of the existing control systems and forward recommendations that would overcome such weaknesses.
- Test the accuracy and reliability of the reports submitted to the Management.
- Report to the Management on all activities covered by the Internal Audit