VALUE OF INTERNAL AUDIT UNDERESTIMATED

TO HELP STAKEHOLDERS obtain the best overview of an organisation’s health, internal audits are most suited to this vital function.

More than just the financials, an audit can alert management to the significance of deficiencies in governance, risk management and internal control processes, and the value of preventing or detecting and correcting such deficiencies before they erode organisational value.

The internal audit exists to help organisations create, preserve and sustain strategic value. However, this is not always clear to the organisational stakeholders who should benefit from an internal audit’s assurance and consulting services.

Internal auditors need to educate stakeholders about what a well-supported and effective internal audit can do to help optimise operations; positively influence decision-making; prevent penalties from non-compliance with laws and regulations; grow market share; improve customer service delivery; enhance public relations, and even propose innovative solutions to sustain competitive advantage.

In this task, stakeholders across all levels of the organisation should be included. As part of its governance responsibilities, the governing body is expected to steer and set strategic direction; approve policy and other strategy implementations; monitor performance, and report on the organisation’s performance.

All these responsibilities require efficient and effective governance, risk management and internal control processes. The chief audit executive can educate the governing body on the work performed by the internal audit function.

This includes how to assess whether key strategic programmes are achieving pre-set objectives; well-performing projects have the desired impact on targeted beneficiaries; operational and financial information reported by management is plausible and can be relied upon, and that all stakeholders within the organisation have consistently upheld ethical standards set by the governing body.

Most governing bodies believe internal audits exist to help obtain positive external audit reports

Without full knowledge of what internal audits can do, most governing bodies wrongfully believe that the internal audit function exists to help the organisation obtain a positive external audit report, and fail to leverage this function’s expertise on the organisation’s core business.

This results in governing bodies giving more attention and financial resources to external auditors, while short-changing the internal audit. This situation often leads to clean external audit reports, but a failure to meet operational, financial and strategic targets and goals.

Therefore, even if financial statements look good, the business activities on which financial reports are being prepared may actually be failing to live up to strategic expectations. Governing bodies must be educated more on these matters, so they can derive full benefits from the costs they incur on assurance and consulting.

Chief audit executives must teach stakeholders that internal audits exist to ensure that the organisation delivers on its strategies and objectives, manages risk and capitalises on meaningful opportunities. This can be achieved through educational presentations in regular stakeholder meetings, leveraging social media and sharing thought leadership information to improve performance in specific processes, such as leading practices in supply chain processes.

Malefetsane Mohlakoana is the associate director of the Technical & Quality Assurance unit at SkX