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What is Internal Audit and why does my business need it?

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What is Internal Audit and why does my business need it?

By: Dean Dorton | December 14, 2021

We believe that all organizations should have an internal audit function; however, the structure and size of the internal audit function will vary greatly depending on the size and complexity of the organization.

Audit and Assurance

We believe that all organizations should have an internal audit function; however, the structure and size of the internal audit function will vary greatly depending on the size and complexity of the organization.

The role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively. The Institute of Internal Auditors defines the internal audit process this way:

“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.”

The internal audit function is normally fulfilled by the internal audit department which can be comprised of one part-time person for a smaller organization or up to 20 full-time people for the largest companies. Many organizations outsource or co-source the internal audit function to a third party in order to maximize budget, efficiency, and have a professional team performing these services. The key point is that every organization needs to have an internal audit function, especially if you want to:

  • have confidence that your organization is meeting its core business goals;
  • save your organization time and money and keep everything running like a well-oiled machine;
  • protect your enterprise against fraud and prevent fraudulent practices;
  • reduce risks to your operations, finances, cybersecurity, and other areas of concern;
  • make sure you’re following the laws, regulations, and standards that apply to your organization – and reduce your costs and hassle when external auditors test your compliance; or
  • be able to tell your board of directors and audit committee with confidence that the entity’s internal controls and business processes are functioning as they should.

Six key benefits of having an internal audit function are:

  1. Strong internal controls.Evaluating your organization’s control environment is your internal auditor’s number-one task.  Internal audit evaluates your internal controls, which comprise actions, systems, and processes, including monitoring, to ensure that they are well designed and implemented and that they are working as they should be – no matter who serves in which role.
  2. Internal audit spots redundancies in your business practices, procedures, and governance processes and comes with recommendations on how to streamline things to save time and money.
  3. Internal audit scrutinizes your cybersecurity environment and examines whether they are secure in accordance with industry standards and your policies. They also look for vulnerabilities in your systems and networks and advise on how to close gaps.
  4. Headline-grabbing cases of fraud at the turn of the 21st century – fraud involving major companies including Enron – were the impetus behind public companies increasing and improving their internal controls. Internal audit can play an important role for private companies in reducing the risk of fraud and ensuring employees are performing their duties with ethics and integrity.
  5. Reduced risk. Internal audit considers all the identified risks to your organization and analyzes whether you are mitigating those risks to an acceptable level. Where you are not, internal audit can provide recommendations to resolve the issue.
  6. Improved compliance.Internal audit can check the laws, regulations, and industry standards with which your organization needs to comply and determine whether you are, in fact, compliant. Where you miss the mark, they can recommend how to remedy the problem.

The internal audit function works from within but acts as objective consultants to your organization, advising you on how to improve your processes, especially those concerning risk management, governance, and internal controls. Internal auditors do more than just audits. They are advisors and consultants that can help you improve your operations, avoid financial loss,  and identify opportunities for financial growth.

Internal audit creates value by identifying organization-wide risks, leveraging synergies, monitoring and improving early warnings of new risks, and improving processes and efficiency. Partnering with a professional service provider for internal audit projects or as an outsourced team, allows you to evaluate your current internal audit function or internal controls environment and development strategies to strengthen your organization to help reduce risks of fraud or material error, maximize operational effectives, and identify opportunities to maximize profits.

In summary, internal audit is an integral part of your organization’s overall success, no matter your organization’s size or structure – nonprofit, private, or public company. You may not have a formal internal audit department but you can still take advantage of completing a full organization risk assessment and performing internal audit procedures to receive the benefits of internal audit that work both within your preferred timeframe and budget.

Dean Dorton is uniquely positioned to assist organizations of all sizes and types navigate the risk management universe. Our team combines extensive experience in internal controls, risk management, regulatory compliance, data analytics, and cybersecurity to provide organizations with a full range of internal control and risk advisory services. From performing a stand-alone project to working in a co-sourced arrangement with your internal audit department, we work with you to provide a unique solution to fit your needs.

So as you review your internal audit function and team, do not hesitate to ask us for input to help you maximize your internal control and risk management opportunities.

Are you interested in Learning about Dean Dorton’s Internal Audit Services? If so, follow the link below:

Internal Audit Services

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