By Tabitha K. Mangomba
Internal audit is one of the most important functions that assist organisations in evaluating systems and internal controls. A vast majority of people have a vague notion of what Internal Auditors do. This has led to many misconceptions about the function. This article aims to correct the misconception most people have on the role of internal auditing in an organisation.
What then is Internal Auditing?
The Institute of Internal Auditors (IIA) defines internal auditing as, “an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” By its very definition, this internal audit activity is intended to enhance the organisation operations in terms of systems and internal controls, risk management and governance processes.
Misconceptions about Internal Audit
There are misunderstandings about the role of Internal audit in organisations. The following are the main three misconception I usually hear:
- Internal auditors are "bean counters" just like the accountants.
One of the most common misperceptions about internal audit is that the auditors are "bean counters" who focus solely on their companies' financial records. However, that is not the case, instead internal auditors are more likely focused on fraud, risks, compliance issues, and myriad operational issues that are unrelated to accounting, and the auditor's background is likely to be as diverse as the operations they audit.
- Auditors are nit-pickers and faultfinders.
The other misconception that is prominent is that Internal Auditors are nit-pickers or fault finders. They are normally considered to be a profession that finds faults in details that are not important. In reality, of course, internal audit's focus is on major risks rather than on nit-picking details. Internal audit resources are usually limited, and when auditors focus too much attention on minor issues, they are limiting the time available for addressing the major risks and controls that are at the heart of internal audit.
- Internal audit is the corporate "police function."
As Lord Justice Topes once said, "The auditor is a watchdog and not a bloodhound." In my experience, the best internal auditors are usually those who create a rapport with their clients. There is usually resistance to auditor’s findings and recommendations when the auditor’s behaviour seems accusing or aggressive. The misconception about internal auditors to operate as corporate police need to be broken down as this stereotype deceive many from appreciating the important function of internal auditors that they bring to the organisation. Therefore, organisations should liken the auditing process to a school report card which highlights areas of strength and improvement.
Why is Internal Audit vital for organisations including higher learning institutions?
Today’s colleges and universities operations are getting more complex than before, this entails that business operations are getting more difficult as their business model and strategic planning keeps on advancing. Our institution is not an exception. The operation model has evolved since National Institute of Public Administration’s (NIPA) establishment in 1963. The scope of its operations and scale of activities have expanded resulting in recently introduction of new programmes including masters programmes. Internal audit plays a critical role in enhancing value in an organisation through the following:
- Risk Assessment
Internal audit has contributed to the enhancement of risk management culture in organisations. Over the past several years, enterprise risk management or ERM has been a hot topic on most campuses across the world. With the help of board members who sat on corporate boards of directors, colleges and universities have incorporated the concepts of ERM to their own operations. Internal audit offers independent and objective assurance that specific risk controls are well designed and are operating effectively.
- Internal Controls
Internal audit function evaluate the systems and internal controls of organisation. Oftentimes, internal controls are seen to be a nuisance and in the worst cases an impediment to doing the research, instruction or other essential tasks of the institution. However, strong internal controls have resulted due to the existence of internal audit function that allows all the vital procedures being put in place to help achieve the objectives of higher learning institutions relating to financial, strategic, and academic initiatives.
- Efficiency and effectiveness of operations
A third benefit of internal audit is the improvement in efficiency and effectiveness. Through the risk assessment process, and by following a systematic and disciplined approach to their work, internal auditors compare organisations’ operations to best practice, whether they are educational institutions or corporate entities.
Internal audit function has proven to promote strong control systems in organisations. For higher learning institutions, good controls encourage efficiency, compliance with laws, regulations and university or college policies, and seek to eliminate fraud and abuse.
Look out for the new Three Line Model article that will appear in the next issue of the NIPA news .The article will discuss in details the role of internal audit in the model, which aims to help organisations to achieve their objective, facilitate strong governance and risk management.
