Published on: Mar 12, 2020
| Updated: Mar 20, 2025
Top Reasons to Conduct Internal Audits
Regardless of the industry, companies face increasing competition with each passing day. Whether you're a massive enterprise, or a small startup, monitoring and maintaining operational efficiency has never been more important. Consequently, internal audit management has grown to become an essential component of a business' success. The dynamic pace of today's business landscape also means that failure to effectively evaluate and manage risks has the potential to ruin any organization.
If your clients or end users expect products or services that are secure and compliant, you will need to ensure that you're making the most of internal audits. In this article, we explore what makes up an internal audit, and why it is a critical contributing process to a successful business.
What are Internal Audits?
Simply put, an internal audit is an independent activity designed to objectively evaluate the effectiveness of an organization's internal controls, risk management, and governance. It is typically preemptive in nature and aims to uncover any discrepancies between operational processes and their intended purpose.
Moreover, internal auditing programs play a crucial role in verifying the alignment of business processes with documented policies and procedures. This ensures that all operations adhere to the established guidelines and protocols, safeguarding your business assets against potential threats.
Upon completion of the internal audit, a detailed report is provided to management, outlining the findings alongside any recommendations. This report not only highlights areas needing improvement but also confirms the consistency of business operations with the organization's documented standards, thereby reinforcing overall compliance and efficiency.
What do Internal Audits Involve?
A typical internal audit will include activities related to sampling existing documents and regulations, creating reports as well as reviewing the initial analysis. Until recently, internal audits were conducted manually and require a tremendous amount of effort and resources.
There is a growing desire for companies to leverage technology and implement a software management platform to project manage the audit process. Organizations who have begun using these platforms are now able to automate several auditing processes, saving countless hours of work. This could be as simple as an automated collection of firewall configuration files, or as complex as the updated roles and responsibility.
1. Sampling, Observation and Testing
From randomly sampling documents to observing workflows across the entire organization, this stage of an internal audit serves as an information gathering, which is sometimes known as the investigative phase. In recent times, enterprises can now use GRC tools to quickly gather the information needed to accurately assess the level of risk within the organization.
As an example; employees could be asked to provide additional information on processes that are being audited. This task has been historically completed via email or even in person. Leading companies are now leveraging technology to gather information at a much faster pace.
2. Reporting
Once all relevant information is gathered, the next step for internal auditors would be to create a report. A standard report would provide a highly detailed description of the audit findings, as well as recommendations for improving internal controls and procedures. The report must also include a succinct summary of the audit process.
Leveraging technology, can again make the reporting stage as painless as possible for your organization. For instance, tools can help you maintain a complete audit history for all your transactions, making it easier to gather information for reports.
3. Review
After the report is complete, it is analyzed by the internal audit committee in order to make relevant suggestions for the affected departments and management. These findings and recommendations are then reviewed with senior management who can enact any necessary changes.
How to Build or Strengthen Your Internal Audit Program
Creating a robust internal audit program can be a daunting task, but it's essential for maintaining organizational integrity and compliance. Here’s a step-by-step guide to building or enhancing your existing internal audit process:
1. Define Clear Objectives
To begin, it’s crucial to have a well-defined purpose for your audit. Determine what you aim to achieve, whether it's improved financial accuracy, operational efficiency, or regulatory compliance. These objectives will serve as the foundation for your audit program.
2. Assemble a Competent Team
Select a team with a diverse range of skills and expertise. Consider professionals with experience in finance, operations, IT, or other relevant fields. A well-rounded team will provide comprehensive insights into all areas of your organization.
3. Conduct a Risk Assessment
Identify the areas that pose the highest risk to your organization. This involves evaluating potential threats and weaknesses, then prioritizing them based on how likely they are to occur and the impact they could have.
4. Develop a Comprehensive Audit Plan
Create a detailed plan that outlines the scope, methodology, timeline, and resources needed for the audit. Ensure the plan aligns with your objectives and addresses the identified risks and areas of concern.
5. Implement Effective Tools and Techniques
Leverage technology to streamline your audit process. Software like ACL, TeamMate, or AuditBoard can facilitate data analysis and reporting while increasing efficiency.
6. Execute the Audit
With your plan in place, proceed to perform the audit according to the outlined steps. Maintain clear communication between team members and stakeholders throughout the process to ensure transparency and accountability.
7. Evaluate and Report Findings
Once the audit is complete, analyze the data, and compile your findings into a comprehensive report. This report should highlight key issues, provide actionable recommendations, and support strategic decision-making.
8. Follow-Up and Continuous Improvement
An audit doesn’t end with the report. Develop an action plan to address any identified weaknesses or compliance gaps. Regular follow-ups are vital to monitor progress and continuously improve the audit process.
By methodically addressing these steps, you can build a resilient internal audit program that fortifies your organization's operations and compliance posture.
Resources for Constructing an Internal Audit Program
Creating a robust internal audit program is vital for maintaining compliance and optimizing operations. Here’s a comprehensive guide to resources that can help you build an effective audit framework:
Step-by-Step Guides
Begin with step-by-step resources that outline the process of establishing an internal audit program from scratch. These guides typically cover everything from setting objectives to identifying key risks and implementing audit controls. Look for expert articles that walk you through:
Defining audit goals and scope
Risk assessment techniques
Reporting and follow-up procedures
Expert Series and Workshops
Engage in specialized training sessions or series that focus on constructing internal frameworks. These can provide insights from industry leaders, covering topics like:
Framework development strategies
Integrating compliance and auditing functions
Best practices and pitfalls to avoid
Readiness and Assessment Tools
Use readiness tools designed for specific industry compliance needs, such as those relating to finance or data protection. These tools often include:
Checklists and templates for audit preparation
Gap analysis tools to identify weaknesses in your program
Guidelines for continuous improvement
Online Courses and Certifications
Enroll in online courses offered by recognized organizations to gain more in-depth knowledge. Certifications can enhance your credibility and ensure you’re up-to-date on the latest auditing standards and technologies. Popular platforms include:
Coursera
edX
Udemy
Each resource offers unique benefits to help you tailor your internal audit program to your organization’s specific needs. Utilize a mix of these options to develop a comprehensive, efficient auditing strategy.
5 Reasons to Perform Internal Audits
Here are the top five reasons why you need to be doing internal audits.
Controls Assessment
This is one of the fundamental reasons for performing internal audits. It allows you to assess your internal controls for efficiency and operational effectiveness, consequently helping you to improve your organization's control environment. The key assessment here is ideally to determine whether the controls are fulfilling their purpose and whether they're sufficient for risk mitigation.
Meet Compliance Requirements
part from the peace of mind that performing internal audits can provide, they also ensure you are compliant with relevant regulations and standards. For instance, compliance benchmarks like NIST 800-53 and ISO 27001 information security standard all require an internal audit before you are deemed compliant.
By performing internal audits, you are going beyond reasonable doubt to manage risks and protect your enterprise's data as required by omnibus regulations like the GDPR and CCPA.
Avoiding Costly Consequences
Failure to comply with regulations can lead to hefty fines and reputational damage. Internal audits act as a safeguard by identifying areas of non-compliance and allowing you to rectify them before they result in costly penalties.
By incorporating these practices, your organization not only adheres to legal requirements but also builds a solid foundation for maintaining long-term trust and integrity in the industry.
Improve Operational Efficiency
Since internal audits essentially provide an objective review of your organization's procedures and policies, you can rest assured that the processes your company has in place are sufficient for mitigating the associated risks. In addition, when these processes are consistently monitored, you're better positioned to quickly identify operational gaps, thereby improving efficiency.
Independent and Unbiased Insight
Whether it's for the entire organization or some departments, an internal audit provides you with an unbiased view into how effective your internal controls are. If your organization has limited resources and you're unable to set up an independent audit team, you could cross-train employees to audit each other's departments.
Risk Mitigation & Asset Protection
Internal audits can help you identify gaps within your business that can be remediated to protect your assets. This will help senior management with identifying and prioritizing risks as well as mitigating them within your enterprise. Beyond identifying risks, internal auditing programs are essential for the ongoing surveillance and assurance of your business assets. They play a crucial role in safeguarding against threats by ensuring that your internal controls are effective and robust.
Additionally, these audits verify that your business processes are aligned with documented policies and procedures. This alignment is key to maintaining compliance and organizational integrity, both of which are vital for protecting your assets from potential misappropriation or loss.
By integrating these elements, internal audits provide a comprehensive strategy for asset protection, effectively balancing risk management with process verification.
Why Internal Audits Are Essential
Ensure Compliance: Regular internal audits help ensure compliance with all relevant laws and regulations. They serve as a proactive measure to identify and address potential non-compliance issues before they escalate.
Prepare for External Audits: By routinely conducting internal audits, you're better prepared for external audits, reducing the stress and uncertainty that often accompany these evaluations.
Gain Client Trust: Demonstrating a commitment to compliance through internal audits can enhance client trust, as clients feel more secure knowing their data is protected under rigorous standards.
The Bottom Line
Conducting internal audits is a critical processes for many organizations, confirming controls are in place , or identifying opportunities for improvement. Moving forward, we can only expect audits to play an even bigger role, particularly with each additional framework that is released requiring stringent controls be implemented.
As internal audits increase in importance and frequency, businesses will continue to turn to technology that will streamline operations. Companies that are already using a comprehensive GRC, IRM or ERM tool for compliance and risk management are leveraging the same software to manage and automate internal audits, taking advantage of real-time data as it is collected from their compliance program and applying it to their audit process. When it comes to managing internal audits, companies utilizing technology are experiencing immediate and lasting benefits allowing them to outpace the competition.
