Leveraging internal audit for business success

Kwame Gyasi Opinion Apr - 13 - 2016 , 15:08

On Wednesday April 13, 2016 and Thursday April 14, 2016, the Institute of Internal Auditors (IIA) Ghana will organise its 2016 Annual National Conference on the theme: “Leveraging Internal Audit for Business Success”. IIA Ghana is the foremost internal auditing professional body in Ghana dedicated to the promotion and development of the principles and practice of internal auditing in Ghana. It is affiliated to the worldwide internal audit professional body, the Institute of Internal Auditors which is headquartered in the United States of America.

Historically, the first internal auditing assignments were usually to satisfy basic operational needs. The concern of management was whether the assets of the entity were being properly protected, whether company procedures and policies were being complied with and whether the financial records were being accurately maintained. There was also considerable emphasis on fraud detection and maintenance of the status quo. The result of all these factors was that the internal auditor himself was viewed as a person of relatively limited responsibility in the total managerial spectrum.

Today, internal auditing reflects a wide spectrum of organisational activities such as the review of the effectiveness and efficiency of operations, compliance with laws, regulations, policies and procedures, safeguard of assets and reliability of information. In most situations, where internal auditing is properly practised, the internal auditing group has moved to very high levels in all operational areas and has established itself as a valued and respected part of top management effort. Despite this progress, in some situations, internal auditing is still functioning to a large extent at the routine compliance level and still suffers from being integrated with regular accounting activities.

Objectives

The objective of internal auditing is to add value. Value is provided by improving opportunities to achieve organisational objectives, identifying operational improvement, and-or reducing risk exposures through both assurance and consulting services. It helps an entity accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

The scope of internal auditing activity is to determine whether the entity’s risk management, control and governance processes, as designed and represented by management, are adequate and functioning in a manner to ensure that:

(a) Risks are appropriately identified and managed;

(b) Interaction with the various governance groups occurs as needed;

(d) Internal and external financial reporting is in compliance with policies, standards, procedures, and applicable laws and regulations;

(e) Resources are acquired economically, used efficiently and adequately protected

(f) Programmes, plans and objectives are achieved;

(g) Quality and continuous improvement are fostered in the entity’s control process; and

(h) Significant legislative or regulatory issues impacting the organisation are recognised and addressed appropriately.

To be effective, the scope of the internal audit function should provide for unrestricted coverage of the entity’s operations, and the internal auditor should have sufficient authority to allow him access to such records, assets and personnel as are necessary for proper fulfilment of his responsibilities.

The activities of the internal audit function may include the following:

(a) Monitoring of internal control. The internal audit function may be assigned specific responsibility for reviewing controls, monitoring their operation and recommending improvements thereto.

(b) Examination of financial and operating information. The internal audit function may be assigned to review the means used to identify, measure, classify and report financial and operating information.

(c) Review of operating activities. The internal audit function may be assigned to review the economy, efficiency and effectiveness of operating activities.

(d) Review of compliance with laws and regulations. The internal audit function may be assigned to review compliance with laws, regulations and other external and internal requirements.

(e) Risk management. The internal audit function may assist the organisation by identifying and evaluating significant exposures to risk and contributing to the improvement of risk management.

(f) Governance. The internal audit function may assess the governance process in its accomplishment of objectives on ethics and values, performance management and accountability, communicating risk and control information to appropriate areas of the organisation.

Today, the internal audit function has universal application in all types of entities and a typical internal audit department comprises various professionals including accountants, engineers, lawyers, doctors, nurses etc. The composition of the staff of an internal audit department of an entity reflects the nature of the entity. In placing the internal audit department in an organisation, the best practice is for the head of an internal audit department, the Chief Audit Executive (CAE), to report functionally to the Board Audit Committee (BAC) and administratively to the Chief Executive Officer(CEO).

The writer is the Board Chair of Ghana Integrity Initiative and author of many books on accounting and auditing.

Writer’s e-mail: makgyasi@ug.edu.gh