According to the institute of the internal auditors, the main purpose of an audit is to provide independent assurance that the organisation’s risk management, governance and internal control process are operating effectively. When you realize the importance of internal audit, your organisation can grow effectively in the short passage of time. Internal audit provides the clear picture of the organisation’s culture, policies and procedures and management oversight by verifying the internal controls such as risk management controls and compliance with any relevant statutory and regulatory requirements. Internal audit provides a number of important services to company management. These includes, detecting and preventing frauds and testing internal control. A small business simply cannot afford employee fraud, waste, or a government fine. Establishing an internal audit function provides a vital step in the growth of a small business.
There are several benefits of an internal audit which can help the organisation to grow. Some of them are listed below and highlights the importance of internal audit.
The Importance of Internal Audit
Small businesses often lose a lot of money every year to employee theft. There are numerous types of frauds committed by the employee of the organisations such as skimming payments from the customers, check tempering, cash theft and misuse of company’s credit card. Many small business owners believe that they lack the staff for creating the internal audit policies and to eliminate these problems. However, with the small staff, a small business may create a program for monitoring employees and their behaviour. This action will prevent the employees from fraud or misusing the organisation’s resources.
Provides Objective Insight
We cannot audit our own work without having a definite conflict of interest. You internal auditor or internal auditing team cannot have the responsibility to achieve the objective insight. In this type of circumstances where small organisations don’t have any resources to devote to this, it is completely acceptable to cross-train the employees in different departments to be able to audit other departments. By providing the unbiased view, this internal audit function will add value to your esteemed organisation. Another alternative would be to use outsourced internal audits which also could bring additional benefits to a business.
Improves Efficiency of Operation
You can receive assurance that you’re doing exactly the same thing that your organisation’s policies and procedure says you’re doing by carefully reviewing it. This process is suitable in reducing the unique risk. You can identify the control recommendation to improve the efficiency and effectiveness of this process by continuously reviewing your process. In return, allowing your organisation to be dependent on the process rather than the people.
Evaluates Risks and Protects Assets
Through the systematic risk assessment, an internal audit program comfort the management and stake holders by identifying and prioritizing the Risk. A risk assessment can also help classifying any gaps in the environment and also allow for a remission plan to take place. The internal audit program will help you to track and document any changes that have been to your environment and ensure the mitigation of any found risk.
We can see the importance of internal audit by experiencing that it improves the control environment of the organisation by assessing the efficiency and operating effectiveness. Are your controls fulfilling their purpose? Are they adequate in mitigating risk?
Ensure Compliance with Statutory and Regulatory Requirements
You can ensure compliance with any and all relevant laws and regulations, by regularly performing an internal audit. It can also help in providing you the peace of mind and make you ready for your next external audit. Gaining client trust and avoiding costly fines associated with non-compliance makes internal audit an important and worthwhile activity for your organisation.
Management would be well served by having an internal audit and we’ll be assured that the company’s policies and procedures are being followed by the employees. It will also deliver the message that the organisation’s risk management system is working effectively in order to mitigate any gaps. For the internal audit, the management will not have to spend a lot of money on hiring an internal auditing team. The process can also be done by cross-training the employees or by outsourcing or co-sourcing.