When it comes to efficiently running a business and staying compliant with regulatory standards, internal auditing is essential. The workplace environment comes with tons of different considerations with everything from government regulations to system standards and corporate requirements.
While that might seem like a bit of an overwhelming concept, conducting an internal audit might just be less complicated than you think. In this article, we’ll discuss why conducting an internal audit is important and the 9 steps involved in conducting one.
What is an internal audit?
An audit helps ensure that your compliance practices are consistent with the requirements of the law. It also provides assurance to investors and creditors that your corporate governance and accounting processes are accurate and reliable. Internal audits are typically less expensive than external audits, but they require a great deal of effort from management.
You can think of an internal audit as something like a pulse check when it comes to your business. They help to ensure all procedures and policies are being followed within an organization and will alert you of any gaps that may exist in policy compliance. You can pinpoint any opportunities for improvement in the workplace and ensure that your business runs efficiently at all times.
Why internal audits are important
Internal auditing allows you to ensure consistency across the internal workings of your business. They are important to ensure that companies are operating within legal and regulatory requirements. They also provide insight into the effectiveness of a company’s processes and procedures.
Internal audits can help your business:
1) Identify potential risks or problems before they become serious issues
2) Ensure that employees are following proper safety protocols
3) Keep track of employee performance
4) Evaluate new systems and processes
5) Determine if there are any regulatory violations
6) Identify weaknesses in security measures
7) Look into possible fraud
8) See if your company is meeting its financial obligations
9) Check for any legal breaches
10) Find out how well your business is doing
Conducting an internal audit once every year provides early warning signals and helps identify weaknesses or potential risks before they become serious problems.
An internal audit conducted at least twice per year gives management information about the company’s performance, allowing them to take corrective action if necessary. Furter, an internal audit performed quarterly allows managers to evaluate whether their policies and procedures are working effectively.
How to Conduct an Internal Audit
The truth is that internal audits can require a lot of time, resources, and ultimately money, which is why so many businesses avoid outsourcing them and opt for in house audits with the use of auditing software. Regardless of whether you want to complete your audits on a daily, weekly, or even annual basis, learning the basics of how to conduct an internal audit can be incredibly valuable. Here’s what you should know!
When it comes to conducting an internal audit there are several steps involved. These include:
1. Identify what areas need to be audited
A good place to start is by identifying the different departments that operate within procedures and policies. Make a list of each of these areas and which parts of each will require a review. That could mean anything from accounting to more detailed manufacturing processes. Define exactly you want to look at during the audit. Is it only looking at one department or do you want to see if there are any systemic issues throughout the entire company?
2. Make a plan for how often auditing should take place
Once you’ve established exactly what needs to be audited, your next step should be to figure out how often you will audit each area. While some may only need a yearly review, others will need more frequent attention.
3. Put together an audit calendar
Knowing how often each department will be audited will help you to develop a structured audit calendar. The better organized and the more diligent you are with your calendar, the better you can ensure each area stays up and running efficiently.
Schedule your internal audits within your business calendar and ensure it’s always completed on a consistent basis.
4. Let all departments know about the internal audit
You will need to make sure each and every department is aware of the fact that an internal audit will be taking place. That way they can prepare the documents and materials necessary for whoever is going to be reviewing.
Try to avoid having department managers feeling surprised or threatened by an internal audit. Give them the heads up and they’ll be sure to manage their area to the best of their ability.
5. Prepare for the internal audit
Auditors should be aware of all policies and procedures well ahead of the actual audit itself. They should also come prepared with the full list of items that they will be reviewing.
Just like managers will need to be prepared, auditors can make for a much more efficient process if they plan out exactly what will be audited.
6. Interview employees
The next step in the internal audit process is to have auditors ask employees to explain their work process. This can then be compared to the written policy.
Interviews allow auditors to see where gaps may lie and where additional attention or training could be needed. This shouldn’t be taken as an opportunity to point out faults, but rather a chance to see where there’s room for improvement and positive change.
7. Analyze the data
Once you have collected enough data it’s time to analyze it. There are many ways to go about analyzing the data. Some people prefer using spreadsheets while others use software programs. Whatever method you choose make sure that you document why you chose each option.
8. Report findings
Once you’ve analyzed the data and documented your reasoning behind your decisions you’re ready to report your findings. This means that you’ll create a report detailing the results of the audit. It should include recommendations for improvements and a plan of action to implement those changes.
9. Implement changes
Now that you’ve created your report you need to take action. You’ll need to communicate your findings to the appropriate parties and then implement the recommended changes. If you don’t follow through with these actions you run the risk of losing credibility with your clients and employees.
What to include on an internal audit
Record the differences noted between employee process explanations and written policies. Once gaps have been identified you can compile findings into an audit report which can then be reviewed with senior management.
Together, an improvement plan can be developed and the business can become better overall.
As you complete ongoing internal audits you’re sure to learn and get better as you go. To help make the process even easier, many organizations like to work with Sine to help streamline their processes and ensure all of their requirements are continually being met.
Sine can help you to conduct an internal audit and give you automatic alerts when compliance documents expire. You can even choose to be prompted to provide the latest documentation on your compliance systems.