Regardless of the industry, companies face increasing competition with each passing day. Whether you’re a massive enterprise, or a small startup, monitoring and maintaining operational efficiency has never been more important. Consequently, internal audits have grown to become an essential component of a business’ success. The dynamic pace of today’s business landscape also means that failure to effectively evaluate and manage risks has the potential to ruin any organization.
If your clients or end users expect products or services that are secure and compliant, you will need to ensure that you’re making the most of internal audits. In this article, we explore what makes up an internal audit, and why it is a critical contributing process to a successful business.
Internal Audits?
Simply put, an internal audit is an independent activity designed to objectively evaluate the effectiveness of an organization’s internal controls, risk management and governance. It is typically preemptive in nature and aims to uncover any discrepancies between operational processes and their intended purpose. Upon completion of the internal audit, a detailed report is provided to management, outlining the findings alongside any recommendations.
By including activities that affect businesses from top to bottom, internal audits go beyond your organization’s internal processes: they’re concerned about the overall wellbeing and success of your organization.
What do Internal Audits Involve?
A typical internal audit will include activities related to sampling existing documents and regulations, creating reports as well as reviewing the initial analysis. Until recently, internal audits were conducted manually and require a tremendous amount of effort and resources.
There is a growing desire for companies to leverage technology and implement a software management platform to project manage the audit process. Organizations who have begun using these platforms are now able to automate several auditing processes, saving countless hours of work. This could be as simple as an automated collection of firewall configuration files, or as complex as the updated roles and responsibility.
1. Sampling, Observation and Testing
From randomly sampling documents to observing workflows across the entire organization, this stage of an internal audit serves as an information gathering, which is sometimes known as the investigative phase. In recent times, enterprises can now use GRC tools to quickly gather the information needed to accurately assess the level of risk within the organization.
As an example; employees could be asked to provide additional information on processes that are being audited. This task has been historically completed via email or even in person. Leading companies are now leveraging technology to gather information at a much faster pace.
2. Reporting
Once all relevant information is gathered, the next step for internal auditors would be to create a report. A standard report would provide a highly detailed description of the audit findings, as well as recommendations for improving internal controls and procedures. The report must also include a succinct summary of the audit process.
Leveraging technology, can again make the reporting stage as painless as possible for your organization. For instance, tools can help you maintain a complete audit history for all your transactions, making it easier to gather information for reports.
3. Review
After the report is complete, it is analyzed by the internal audit committee in order to make relevant suggestions for the affected departments and management. These findings and recommendations are then reviewed with senior management who can enact any necessary changes.
5 Reasons to Perform Internal Audits
As risks continue to evolve, internal audits remain a critical process for providing quality assurance. Here are the top five reasons why you need to be doing internal audits.
Controls Assessment
This is one of the fundamental reasons for performing internal audits. It allows you assess your internal controls for efficiency and operational effectiveness, consequently helping you to improve your organization’s control environment. The key assessment here is ideally to determine whether the controls are fulfilling their purpose and whether they’re sufficient for risk mitigation.
Meet Compliance Requirements
Apart from the peace of mind that performing internal audits can provide, they also ensure you are compliant with relevant regulations and standards. For instance, compliance benchmarks like NIST 800-53 and ISO 27001 information security standard all require an internal audit before you are deemed compliant.
By performing internal audits, you are going beyond reasonable doubt to manage risks and protect your enterprise’s data as required by omnibus regulations like the GDPR and CCPA.
Improve Operational Efficiency
Since internal audits essentially provide an objective review of your organization’s procedures and policies, you can rest assured that the processes your company has in place are sufficient for mitigating the associated risks. In addition, when these processes are consistently monitored, you’re better positioned to quickly identify operational gaps, thereby improving efficiency.
Independent and Unbiased Insight
Whether it’s for the entire organization or some departments, an internal audit provides you with an unbiased view into how effective your internal controls are. If your organization has limited resources and you’re unable to setup an independent audit team, you could cross-train employees to audit each other’s departments.
Risk Mitigation & Asset Protection
Internal audits can help you identify gaps within your business that can be remediated to protect your assets. This will help senior management with identifying and prioritizing risks as well as mitigating them within your enterprise.
If you’re using a GRC tool to perform internal audits, you should be able to at the very least prioritize risks, track and document changes within your business from a single platform.
The Bottom Line
Conducting internal audits is a critical processes for many organizations, confirming controls are in place , or identifying opportunities for improvement. Moving forward, we can only expect audits to play an even bigger role, particularly with each additional framework that is released requiring stringent controls be implemented.
As internal audits increase in importance and frequency, businesses will continue to turn to technology that will streamline operations. Companies that are already using a comprehensive GRC, IRM or ERM tool for compliance and risk management are leveraging the same software to manage and automate internal audits, taking advantage of real-time data as it is collected from their compliance program and applying it to their audit process. When it comes to managing internal audits, companies utilizing technology are experiencing immediate and lasting benefits allowing them to outpace the competition.
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