More businesses are looking at the way they manage risk and may consider having an internal audit function, although for a smaller organisation resource is likely to be limited. With that in mind, here are 10 important qualities for internal audit within small businesses.
Internal audit isn’t just about checking transactions and controls; it is also a consultancy activity. It requires an appreciation of the strategic dimension and how business is done.
Recommendations to strengthen practices in one area could have a consequential effect elsewhere and a balanced view is required. Some of the biggest risks are non-financial (such as reputational damage, through quality issues) or are not directly related to systems and processes. The auditor needs to be mindful of the big picture, as well as cost constraints.
The auditor must understand the detailed aspects of processes and also to have an eye for the unusual.
The auditor should understand the challenges and pressures staff face and gain their confidence. Being able to think about practicalities, such as whether reports are easy to use, is also helpful.
There should also be an understanding of the constraints of smaller businesses. A pragmatic approach is needed to encourage staff in their work and when focusing on how to improve.
While lessons can and should be learned from the past (both good and bad), it is important for the auditor to focus on the future and avoid being unnecessarily critical.
The auditor should be able to stand back and not be unduly influenced by the agendas of others. They must be prepared to be firm in their opinions and also to be critical where necessary, but always in a constructive fashion.
The board or audit committee has a role to play here as impartiality is easier to achieve if they have a strong relationship with the internal auditor.
While a broad skill set is required, there may occasionally be areas that are outside the auditor’s skill set. The auditor should be prepared to request specialist support where needed.
Familiarity makes it easier for the auditor to connect with what’s happening in the business and to operate effectively, but they should always retain their independence.
The auditor should have the ability to quickly adapt to new scenarios and to relate to people at all levels in the organisation.
Reports should be clearly laid out to make it easy for recipients to follow. There should be clear recommendations and a summary of key points, with management’s responses. There is merit in having a rating system to measure the assurance obtained from each piece of work.
Internal audit should make a genuine contribution to helping the business move forward. It is not just about compliance. Internal audit will only be truly effective if it is received positively by the organisation. To make that happen, it needs to be delivered by the right people with strong board backing.
David describes himself as “Extra eyes and ears for directors and trustees”. He provides consultative and investigative support for small and medium sized organisations, including outsourced internal audit.
Non-Executive Directors Group, May 2015
© Camrose Consulting 2015