Nobody likes or wants to be deceived, especially by those they place their trust in or have expectations from them to do the right thing. Fraud and corruption can be a massive PR blow for most corporations and enterprises. It can also prove to be detrimental to the self-image of the internal hierarchy and a lapse in confidence in being able to counteract against a fraudulent scheme. The PR blow may lead to a tarnished public image, job destination, organisational morale stooping and losses as well.
But what can businesses, corporations do to deter such schemes? The answer is simple, internal auditing! In recent times, internal audit has increasingly gained ground and companies find it very valuable in its capabilities. In-house internal audit departments or internal audit outsourcing can be used to ensure a check and balance of systems and procedures, risk management, while also providing recommendations to overcome weak areas
The nature of work entails having internal auditing, as well as the sensitive information required, most companies prefer an in-house team that deals with the audit process, rather than outsourcing.
Developing an audit and assurance department is an exercise that should be thoroughly carried out to guarantee the efficiency and acceptability of the department by other stakeholders involved with the company. Often, managers and sometimes the entire workforce of an enterprise may harbour hard feelings for the audit team and under such circumstances, an in-house team might not be best suited.
Although that might only be the case when the auditing team can’t keep its findings or workings under wraps, if the critical information is kept under lock and key while fully implementing recommendations, internal audit can be the tool a company needs to bring in change.
Steps to be taken
How the department is set up and the process in which the team carries its tasks is most important. The following are key steps that can be taken to ensure a successful set up of an internal audit department:
1. Obtain and discuss expectations from the department with senior-level management including the board and audit committee, involving required listing standards for listed companies. Non-listed corporations should consider voluntary compliance.
2. Get the audit committee to develop and approve a charter.
3. Formulate a proper budget and staffing model on how you want to hire. Also, do review what your competitors in the industry are doing while keeping in mind your own company’s policies.
4. Also generate reporting lines and regulations, while also establishing responsibilities of the internal audit department.
5. Find areas in your company that require auditing
6. Make sure to carry out the initial risk assessment with the management and audit committee.
7. Consider the need to comply with various statutory requirements within your environment for instance compliance with Sarbanes-Oxley Act for companies in the USA.
8. Make an internal audit plan which is suited to the risk assessment
9. Outline whether staff for the department will be hired internally, or outsourced
10. Plan and implement audit work required for the audit plan, including a system to examine and follow up on audit recommendations.
11. Keep on updating the risk assessment for varying conditions during the year
12. Always improve and modify the internal audit work-frame to meet changing needs of the company and management alike.
Once the department has been set up, the head of the department should ensure that the objectives of the department are reviewed and evaluated from time to time. Often, the department will be driven by the risk assessment results to develop certain intervention policies on its own. The head of the department can use a risk assessment questionnaire which is distributed to all heads of auditable departments to evaluate their risk exposures in a given time frame.
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