Strategic value of internal audit

Internal auditing is the stone the business landscape ignores which is, however, a cornerstone and an essential pillar for business’ long sustainability in today’s dynamic world.

Introduction:

In today’s dynamic and evolving business environment, effective internal controls are crucial for ensuring organisational success, mitigating risks and maintaining regulatory compliance.

The internal auditing function plays a pivotal role in this process, serving as a powerful tool for businesses to evaluate and improve their internal controls.

It is unfortunate that many organisations either ignore or underestimate the role by internal auditors. To take it from the biblical context, internal auditing is the stone builders rejected which is a cornerstone and an essential pillar for business’ long sustainability.

By harnessing the potential of internal auditing, organisations can enhance their governance framework, streamline operations and safeguard their assets. This article defines internal auditing and explores how businesses can effectively utilise the internal auditing function to improve internal controls and drive sustainable growth.

Definition and purpose of Internal Auditing

Internal auditing is defined by the Institute of Internal auditors as “an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations”

It is a process carried out within an organisation to evaluate and assess its internal controls, risk management practices and operational efficiency. It is an independent and objective activity performed by internal auditors who are typically employed by the organisation.

The main functions of internal auditing include:

Reviewing Internal Controls: Internal auditors assess the effectiveness of an organisation’s internal controls, policies and procedures to ensure they mitigate risks and comply with applicable laws and regulations.

Risk Assessment: They identify and evaluate potential risks and vulnerabilities within the organisation and recommend measures to manage or mitigate those risks.

Compliance Monitoring: Internal auditors verify if the organisation adheres to relevant laws, regulations and internal policies and they provide recommendations for corrective actions if any deviations are detected.

Operational Audit: They assess the efficiency and effectiveness of business operations, including financial management, budgeting and resource allocation, to identify areas for improvement and optimisation.

Fraud Detection: Internal auditors play a crucial role in detecting and preventing fraudulent activities within the organisation by conducting investigations and implementing preventive measures.

Providing Recommendations: Based on their findings, internal auditors make recommendations to management on improving internal processes, controls and risk management strategies.

Ways to Harness The Internal Audit function

Establishing a Proactive Internal Audit Function: To harness the power of internal auditing, businesses should invest in establishing a proactive and independent internal audit function. This function should be equipped with the necessary expertise, resources and authority to conduct comprehensive assessments of internal controls. By having a dedicated internal audit team, businesses can ensure regular audits are conducted and provide valuable insights into areas that require improvement.

Mapping Key Business Processes and Risks: Internal auditing should focus on mapping key business processes and identifying associated risks.

By conducting process walkthroughs and risk assessments, businesses can identify control gaps, inefficiencies, and potential areas of vulnerability. This step is crucial in understanding the overall control framework and determining areas for improvement.

Designing and Implementing Sound Internal Controls: Based on the findings and recommendations of internal audits, businesses should design and implement robust internal controls.

These controls should be customised to address specific risks, mitigate vulnerabilities and promote efficiency.

Internal auditors play a key role in assessing the effectiveness of existing controls, identifying control weaknesses and making relevant recommendations to strengthen internal controls. By continuously monitoring and testing these controls, businesses can ensure their effectiveness and compliance with regulatory requirements.

Enhancing Risk Management and Fraud Prevention: The internal auditing function can significantly contribute to risk management and fraud prevention efforts within businesses. By conducting regular risk assessments, businesses can identify emerging threats, assess the adequacy of existing controls and implement risk mitigation strategies.

Internal auditors play a pivotal role in detecting and investigating potential fraudulent activities, ensuring compliance with anti-fraud policies and promoting a culture of ethics and integrity within the organisation. This robust approach to risk management fosters transparency, safeguards assets and protect the reputation of the business.

Continuous Monitoring and Improvement: The internal auditing function should be engaged in ongoing monitoring and improvement of internal controls. Through periodic audits, businesses can track the effectiveness of implemented controls, identify evolving risks, and adapt their strategies accordingly.

By staying abreast of regulatory changes, industry best practices and emerging technologies, internal auditors can provide valuable recommendations for process enhancements, technology upgrades and control automation. This proactive approach ensures that internal controls evolve with the organisation and remain effective in mitigating risks.

Conclusion:

Businesses that harness the power of the internal auditing function not only strengthen their internal control environment but also position themselves for sustainable growth and success.

By establishing a proactive internal audit function, mapping key processes and risks, designing robust controls, enhancing risk management and continuously monitoring and improving internal controls, organisations can effectively protect their assets, enhance operational efficiency and achieve regulatory compliance.

The internal auditing function serves as a critical enabler in maintaining accountability, transparency and good governance within businesses, ultimately contributing to their long-term stability and competitive advantage.

By prioritising internal controls and leveraging the expertise of internal auditors, businesses can proactively manage risks, detect vulnerabilities and continuously improve their overall governance framework.

Rtd Major S Zhou

Rtd Major Silibaziso Zhou is a senior lecturer at Great Zimbabwe University and has the following academic accolades; (PAAP,FACCA,FCGI,MBA,MCOM.ACC,B.TECH ACC, Forensic Auditor)

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