Audit. Just hearing the word can make you uneasy. Why? Could it be its close association with a government tax agency, the fear of getting caught red-handed, or the fact that nobody enjoys being scrutinized under the microscope? Whatever the reason, auditing and auditors can make us uncomfortable. However, internal auditing is a healthy business practice that can help you improve your company’s efficiency, keep your customer data more secure, and make you less likely to be fined for regulatory non-compliance.
What is an Internal Audit?
Internal auditing is a deeper dive into your business and business practices to determine if it is running the way it should or if there are adjustments that you need to make. Unlike the financial audits of the IRS, which many taxpayers fear, an internal audit looks at more than just financial data and transactions. An internal audit examines many aspects of the business, from its compliance with applicable regulations and laws to the way employees’ access and store customer data to the processes that govern daily business operations.
Who Performs an Internal Audit?
Internal audits are most valuable when the person or team performing the audit has no stake in the company. Ideally, they have no operational responsibility. For many organizations, these duties fall to their auditor or auditing department. However, for small businesses, this arrangement may not be feasible. In the case of small businesses, auditing duties can fall to employees from different departments. The more objective and unbiased the individual or group performing the audit, the better.
What Type of Audit Does an Internal Auditor Perform?
A full internal audit can encompass a variety of business activities. Based on the operational needs of the organization, an auditor may choose to focus on or prioritize certain types of audits or perform a wider investigation, which may include the following:
- Environmental: examines the environmental impact of the business and may also shed light on how well the business is adhering to environmental regulations
- Performance: assesses KPIs to determine whether the business is on track to meet future goals and identifies roadblocks
- Compliance: determines whether the company is operating in compliance with all applicable laws and regulations
- Security: probes data and cybersecurity practices to determine whether data is accurate and stored securely
- Financial: scrutinizes financial statements and confirms the accuracy of financial reports
- Operational: determines whether appropriate internal controls are in place and functioning as expected
Why Should Companies Perform Internal Audits?
To Ensure Compliance
Businesses in highly regulated industries, including banks, government agencies, and healthcare institutions, know the importance of remaining compliant with laws and regulations for their industry. However, every organization has a responsibility to follow all applicable laws. The consequences of non-compliance vary depending on the infraction, but they are never healthy for a company’s image. Customers quickly take note when an organization is caught on the wrong side of the law. Looking for and proactively addressing compliance issues protects you from fines and a tarnished reputation.
To Gain a New Perspective
For the same reason many business owners seek to build diverse teams, there is value in the advice of a third party. Business auditors are trained in many aspects of business operations. Their unbiased view of the way your business operates could open the door to improving processes, removing redundancies, and streamlining operations.
To Assess Your Business Risk
Risk is inherent in business. There is the risk that your new product or service will fail, that your new employee won’t be the great team leader you wanted, that your new business partner will file for bankruptcy, or that your website will get hacked. While you can’t avoid risk altogether, it is essential to know where you have risk and how great the risk is. Understanding your risk allows you to decide where you are willing to take risks and where you need to eliminate risk.
An internal auditor’s systematic review of your business can help identify your areas of risk and develop a plan for reducing your risk exposure and protecting valuable company assets.
To Become More Efficient
Processes ingrained in your business may be the way you have done things for years. Over time, however, these processes can become redundant or antiquated. Keeping up with the competition can literally mean keeping up with their production schedule, technology adoption, and innovation. Developing the most effective and efficient processes to get the job done ensures that regardless of the person performing the task, your business will perform well all day, guided by streamlined processes and proven procedures. An auditor who is removed from the daily processes can help you improve current operations.
To Examine Controls
Internal controls within your organization place proper boundaries around employee duties and access. These controls help you maintain regulatory compliance and safeguard your company from fraud and theft. An internal auditor will examine the controls you have in place. Are they sufficient? Do the controls do what they are intended to do? Are there other areas that are not controlled that should be? An auditor can help you answer all of these questions and keep your internal controls up to par.
They Are Not What They Seem
In the world of business, an audit shouldn’t always come with a negative connotation. It is an opportunity for business leaders to examine one or many facets of their business from their IT recruiting process to their financial statements and everything in between. An internal auditor offers an unbiased opinion of your business operations based on the information they gather. The information they uncover and the advice they offer could save you time and money now and in the future.