Maximizing Benifit From Internal Audit
During the month of December 2010, Morison Menon launched a survey covering select companies across Middle East and India to understand their experience with internal audit function in their organization. The survey covered decision makers in hundred Large and SME companies across multiple domains.
Our analysis of survey findings is shared below.
Only 40% of the respondents had dedicated internal audit team whereas 30% had internal audit team members who also performed other roles in the organization and 30% had outsourced their internal audit function.
Overall about 75% of respondents were happy with the performance of their internal audit but 25% of respondents felt internal audit was not able to add value to business. We also noticed that 80% of the organizations which did not have dedicated internal audit team were dissatisfied with the performance of internal audit.
70% of the organizations had issues of not adhering to audit schedule and more than 95% of the management expressed concern on closure of audit findings at ground level.
Management in 80% of the organizations were concerned about the utilization of internal audit resources and cost being incurred on the internal audit team, when they had a dedicated team assigned for internal audit.
Another area of concern expressed by the management was their inability to attract and retain top talent in their internal audit team due to inability to provide a clear career plan for their internal audit team.
Only 30% of management spent time reviewing internal audit findings during their management review meetings.
Organizations are unable to maximize benefit from internal audit function
From our survey findings, we realized that more than half the respondents did not benefit from internal audit because of absence of right kind of talent in their internal audit team since these organizations could not have a career plan for their audit team, leading to exodus of talent from internal audit team.
In case of small and medium sectors the benefit of internal audit was not being realized since the internal audit team lacked authority due to reporting structure not being independent. In case of SMEs there was also concern on quality of their audit reporting and inability of the audit team to advise the management on best practices that are followed by the successful organizations.
Firms that had internal audit team, unlike those which had outsourced internal audit function, the issue was with adherence to internal audit schedule and reporting and cost in maintaining the team.
In organizations not having a dedicated internal audit team, conflict of interest and lack of audit skill was leading to ineffective internal audit as per the survey.
To conclude, there are a few common traits that evolve from the survey results which are useful for organizations to take notice. These are:
- Need to have a team of independent auditors with well defined reporting lines
- Have specialist internal auditors, if planning to have in-house team
- For SMEs, it is better to outsource internal audit function to realize full benefit of audit and optimize cost
- Have a clear career plan for internal audit team
- Ensure periodic skill updation for internal auditors
- Adhere to well defined audit schedule
- Ensure effective follow-up to ensure closure of audit findings
- Outsourcing internal audit can bring a fresh perspective in companies that have small internal audit team.
- Management review needs to take stock of internal audit findings and monitor closure of issues highlighted by auditors.