And the same thing goes for businesses. Every business organization strives to achieve optimal performance and elevated profits. While many factors play a role in achieving these goals, the role of internal audit cannot be overstated. Internal audits provide a regular evaluation of your strategies and procedures and assess your trajectory toward achieving your business goals.
This consistent assessment of your business processes and systems not only offers a clear view of your current business performance but also highlights areas where improvement is needed, ensuring smarter decisions and better outcomes.
In this article, we'll discuss what internal audits are and the role they play in improving business performance.
What is Internal Audit?
Internal audit is a procedure through which you can assess and analyze the overall performance of your business organization as well as implement recommended strategies for continuous improvement. The process involves examining your company's records, procedures, operations, workflows, culture, and ethics with the help of an audit team.
Internal audit deals with identifying issues with regulatory compliance and data inaccuracies in financial reporting, detecting internal or external frauds, assessing any potential risks that your business might face, and offering recommendations on managing those risks.
The audit is usually performed by a dedicated audit team that works independently and objectively in order to provide an unbiased view of the inner workings of your organization. Additionally, it provides valuable insights to enhance the efficiency of your organization and improve business performance.
How Does Internal Audit Improve Business Performance?
By delivering independent, data-driven insights, internal audits help your organizations discover inefficiencies in your business operations, enhance risk management, promote strategic planning and more. Let's understand these benefits in detail.
1. Strengthens internal controls
Internal controls consist of processes or operations that enhance the likelihood of achieving the objectives and goals of your organization. Internal audit evaluates these internal controls to uncover any delays, redundancies, or outdated practices that may be obstructing your organization's inefficiency.
There may be some overlapping responsibilities or duplication of efforts, but an internal audit can highlight that. This not only saves valuable time but also allows you to allocate the same resources towards management of operations that are more strategic.
The role of internal audits is also to evaluate team performance and adherence to internal policies of the organization. This makes employees more accountable and conscious about their roles and responsibilities, which results in enhanced operational efficiency.
2. Ensures regulatory compliance
Compliance with applicable laws and policies is a significant responsibility of every organization. Some regulatory laws include ISO standards, GDPR, PCI DSS, SOC, FISMA, HIPPA, SOX, and other industry-specific policies and regulations. In addition to providing legal protection, adherence to these laws is also essential in maintaining organizational trust and credibility, boosting stakeholders' trust, and ensuring business continuity.
On the other hand, non-compliance can lead to hefty penalties, reputational damage, and strict sanctions. Internal auditing ensures that your organization is always compliant with these necessary policies and laws by regularly reviewing policies and ensuring adherence.
Internal auditors comprehensively evaluate company's operations to pinpoint areas where the organization may be at risk of regulatory non-compliance by conducting regular compliance audits. This also involves keeping up with changing regulations and educating your employees on complex laws and guidelines.
3. Enhances risk management
Risks are inevitable in the functioning of any organization, and they need to be identified and addressed to prevent or reduce financial liabilities. Risk management involves the identification of risks involved in an organization's internal controls that may hinder its ability to achieve established goals and objectives.
Internal auditors ensure that the organization accurately identifies and addresses risks related to its policies, procedures, operational controls, and other critical areas. They engage with key stakeholders, including senior management, department heads, and frontline staff, to gather insights into potential risks and assess the effectiveness of existing controls.
Further, they evaluate the likelihood of the occurrence of these risks and their potential impact on your organization. This step is followed by valuable insights and actionable recommendations to improve the effectiveness of risk-mitigating strategies.
4. Protection against fraud
According to a report, businesses globally lose 5% of their revenue to fraud every year. These statistics highlight that internal or external frauds are a significant threat to the operational efficiency of many organizations. These frauds usually include asset misappropriation, corruption, or falsifying financial statements.
Internal auditing can identify areas vulnerable to frauds and evaluate existing control mechanisms to determine how effectively they mitigate the identified risks. They also leverage data analytics to analyze large datasets to uncover irregular patterns, such as duplicate transactions, unauthorized access, or unusual accounting. This helps them detect anomalies that may signal fraudulent activity or financial misstatements along with boosting financial health.
By conducting regular audits, internal auditors help cultivate a culture of ethics, accountability, and transparency. This proactive environment not only deters potential fraud but also encourages employees to act responsibly.
5. Supports strategic planning
A robust strategy serves as a roadmap for your organization to achieve the aspired goals and objectives. Internal auditors gain in-depth knowledge of your organization's processes, systems, and controls. This gives them a unique vantage point to identify inefficiencies and recommend improvements that are both practical and aligned with your strategic goals.
Internal auditors also ensure that proposed strategies adhere to relevant regulatory standards, industry norms, and your organization's governance framework. They also measure the performance of existing strategies and suggest any changes or improvements for better quality management.
Strategies often require optimum allocation of resources, both financial and human. Internal auditors can provide recommendations on streamlining resource allocation and also ensure that your organization can derive maximum value from this allocation, which helps improve business performance.
Wrapping Up
Internal audit plays a significant role in supporting the growth and expansion of your business. It enhances the operational efficiency of your organization, improves risk management and fraud detection, strengthens internal controls, and supports informed decisions.
By providing consistent evaluation and actionable recommendations, it ensures your organization is always on the right path to achieve your business objectives.
If you are looking for efficient ways to perform internal audits, Effivity’s audit management software can greatly help. It removes the hassle of managing your audit program by delivering all the essential components needed to maintain a compliant internal audit system that not only meets international standards but also uncovers valuable opportunities to enhance your business processes.
Effivity's efficient audit management software includes creating and reporting on the audit schedule, planning, and documenting audit preparations, and managing detailed audit checklists. It also involves collecting and securely storing audit reports, distributing them for review and approval, and linking audit findings to appropriate corrective actions.
