Key Components of an Effective Internal Audit

Organizations may undergo a variety of audits and reviews to evaluate compliance with standards. These standards can stem from government regulations, ISO or system standards, an organization’s processes and procedures, or the need to demonstrate effective use of government resources. Internal audits provide an independent, systematic, and objective process that assesses compliance and informs management of potential opportunities for improvement. For entities that administer federal funds, structured, scheduled internal audits provide periodic evaluation of internal controls and the effectiveness of risk management strategies that ensure good governance.

Best Practices

As a general rule, organizations managing public funds should ensure they perform the following functions:

·        Review and approve transactions before they are processed

·        Reconcile accounts regularly

·        Prepare documents and reports timely and within the required timeframes

·        File and retain documents in an organized manner that is consistent with record retention policies

·        Segregate duties within a function such that no one individual can perform all of the procedures within any business process

Scope

To establish consistency and a prescribed path for the audit, it is critical to define the specific areas and functions included within the audit. The definition of scope should include consideration of applicable regulations, standards, relevant policies that apply to the business process being examined. To maximize participation from staff, the scope must be shared with staff, so they understand expectations and rationale for the audit and to avoid unnecessary work.

Key Contacts

To limit interruptions and delays in the audit process, it is beneficial to assign key contacts to interact with the audit team. These individuals should be knowledgeable of the applicable regulations, standards, relevant policies governing the business process and have access to relevant files and materials that the audit team needs.

Schedule

Once the scope is determined, a schedule for the audit must be established to keep the audit process moving forward. This ensures the timeliness of the audit by setting deadlines for the audit team and determining availability of key individuals. Key individuals include staff that need to be interviewed and staff who control access to pertinent documentation and records required for the audit.   

Documents and Records

The audit team will need to review various documents and records during the audit process. When the scope is being established, or shortly after it is, a document request should be produced by the audit team and shared with key contact. This should include  policies, procedures, past audit findings, and reports emanating from the business process under examination. Doing this early in the process provides staff time to prepare the request, mitigate delays and better inform the audit team caused by gaps in documentation.

Status Updates

Establishing regular and periodic status meetings to discuss progress and updates will ensure consistent communication throughout the audit will permit the timely resolution of issues or concerns and help keep the audit on track. To emphasize the importance of these meetings, they should be Included in the audit schedule and action items stemming from these meetings should be documented and communicated to key contacts.

Workspace

To maximize the effectiveness and efficiency of the audit team , they need adequate workspace insulated from distractions with access to power, internet, and other resources. Consider adding a work station or laptop that is connected to the internal network so that the audit team may have easy access to files.

Internal audits are a vital tool for the effective and efficient operation of an organization and the establishment of an accountability framework. Well-structured and executed internal audits uncover risks and reveal areas of opportunity that can catalyze change, optimize business processes, and provide transparency for stakeholders.  Preparation, planning, and open communication before and during the audit process ensures cooperation and coordination between the audit team and staff. This will ensure that the audit produces specific and actionable recommendations.

Learn more about how Bronner establishes, supports, and provides trusted internal audit services for our public-sector clients.