The Importance of Internal Audits
Global Interconnect, Inc. is a leading medical device and high-end industrial/commercial manufacturer for the world’s largest OEMs, where customized solutions become critical connections. Every week a different member of the GII team writes and produces a “Nutritional Blast” touching on topics related to the world of business, business culture, and industry specific ideas and information in an effort to share knowledge and educate one another. We believe sharing these ideas will generate a more interesting and inspiring conversation!
What is an internal audit?
“The role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively.”
In this week’s Nutritional Blast I decided to highlight the importance of internal audits. Internal audits may not be the most exciting topics of discussion for everyone, but they play a key factor in ISO eligibility, as well any other necessary certifications, which is vital to the growth of a company.
Over the past few months I have been researching ways to improve our own internal audits so we, as a company, can perfect our quality processes and continue to improve our craft. Below are some of the benefits, as well as some helpful additional details, to note about internal audits from an article published in The Partners’ Network written by Raymond Broek (Broek has over 40 years experience specializing in internal control assessments, internal audit services and Sarbanes-Oxley related matters). Broek’s full article can be found here.
Some of the benefits of having a good system of internal controls are:
• Helping protect assets and reduce the possibility of fraud
• Improving efficiency in operations
• Increasing financial reliability and integrity
• Ensuring compliance with laws and statutory regulations
• Establishing monitoring procedures
Internal audit is responsible for monitoring the effectiveness of the internal control processes that have been established by management.
The principal tasks of an internal audit include:
• Risk assessment – Assisting management with identifying and prioritizing areas or processes that require attention and audit focus to actions that may adversely affect the organization; prioritizing projects by level of potential risk; and develop a plan that will limit exposure to loss
• Process walkthroughs and documentation – Gaining an understanding of the processes and procedures as they currently exist, especially with respect to the IT systems processing high volumes of transactions and interviewing department heads and process owners with a focus on “what can go wrong” scenarios
• Control assessment – Identifying gaps, also known as “trouble spots,” where procedures and controls are not properly designed
• Testing – Performing tests of controls to verify whether controls are working as designed
• Reporting – Providing observations and recommendations to improve processes and controls
• Organizational changes – An alertness to organizational changes that could potentially impact the management of risk, changes in organizational ethics, management reorganizations, financial demands, resource constraints, technology and E-business changes, consolidations and alliances, and legislative and regulatory imperatives
Some specific benefits that an Internal Audit function will provide:
• Improve the “control environment” of the organization
• Make the organization process-dependent instead of person-dependent
• Identify redundancies in operational and control procedures and provides recommendations to improve the efficiency and effectiveness of procedures
• Serve as an Early Warning System, enabling deficiencies to be identified and remediated on a timely basis (i.e. prior to external, regulatory or compliance audits)
• Ultimately increase accountability within the organization
• With an internal audit function, management would have an advocate, a risk manager, a controls expert, an efficiency specialist, a problem-solving partner and a safety net
I know this is a very “Quality” post but I hope some of you will appreciate the importance of this process! 🙂