How to produce an internal audit successfully
Published: 16 October, 2019
No matter what industry you’re based in, a business success thrives on improvements being made and one of the most effective ways to do so, would be to appoint an internal auditor out of one of your staff, or hire a third-party internal auditor. The job of an internal auditor is to act as a fresh pair of eyes on your business processes, reviewing the behaviour of them on a daily basis to see whether:
● Processes are being followed
● Processes are still effective/relevant
● Risks occur during these processes
● Output is of a consistently high standard
Depending of the nature of your business, certain departments would need more frequent internal audits than others.
How to plan an audit
Step one, would be to draw up a list of areas that need an internal audit. This may include:
● Purchasing
o Purchase invoice process
o Purchase order process
● Sales
o Sales invoice process
o Sales order process
o Sales quote process
● IT and Security
● Human Resources
● Accounting
o Payroll process
o Expenses process
● Manufacturing
o Preparation of Item A
o Production of Item A
o Finish/Quality Control process
● Shipping
o Stock process
o Shipping process
Once you’ve listed your areas and process within your organisation, you can plan how frequent you require an audit. With this information, you can create an Internal Auditing Calendar for the year.
Drawing up a calendar
Audits should be considered as a necessity and not an additional process of the business structure. Drawing up a calendar ensures that the audits will be completed on time and frequently.
Your internal auditing calendar doesn’t need to be anything fancy. A simple template to follow could be:
Department Auditor Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Dept. A
Process 1 John Done Scheduled Scheduled
Process 2 Jane Done
Dept. B
Process 1 John Done Scheduled
Process 2 Jane Scheduled
By using an audit calendar, you will be able to alert your chosen departments in advance on any scheduled audits, which is recommended to be able to prepare the correct documentation for you to review. It also gives the internal auditor a chance to locate the process documents and review how the process should be followed and write up relevant questions, before they observe it in action.
The process of an internal audit
Observing and reviewing
With questions needing to be answered, the internal auditor must monitor the performance of employees on the processes they’ve been given, preferably in a natural scenario ((i.e. the task needed doing that day). Asking the employee questions about the process they are performing will give the auditor insight as to whether or not the member of staff is, a) following the process properly, and, b) understands the process and the risks it is designed to mitigate.
Based on the answers received, the auditor can plan out areas that need refresher sessions, or aspects of the process that may have not aged well (such as inefficient practices compared to technology that has been brought into the workplace).
Evaluation
With the completion of the observation and interview process, the internal auditor needs to document their findings and highlight areas that need improving.
The document again, can be as simple or detailed as you require, as long as it records the findings. In the event of a process found to be non-compliant, the auditor will need to recommend further measures in an action plan. They may also need to raise a Non-Compliance Report, depending on your company and its quality compliance measures and recognitions:
Process Findings Compliant?
Process 1 Procedure completed in accordance to outline of Process 1. No risks found. ✔
Process 2 Equipment used as part of Process 2 suffering notable wear and tear. Product quality affected by this. ✘
Process 3 Data is stored accurately and safely in accordance to outline of Process 3. No risks found. ✔
Plan of action
Working with the respective head of department, an action plan must be created to address any issues or risks highlighted in the internal audit. This should include the finding, the corrective action, who will take ownership of implementing the corrective action, and the deadline for doing so. There should also be a follow-up date to ensure the corrective action has been applied:
Finding Corrective action recommended Non-compliance report number Owner Deadline for implementation Review
Process 2 Replace hydraulic torque wrench power head. NCR4 George 01/12/19 01/01/19
The process of internal auditing is a benefit to any business, and it should be implemented as a critical procedure, and not simply as something to tick off in the books!
Sources:
https://thethrivingsmallbusiness.com/internal-audit-process/
https://www.accaglobal.com/an/en/member/sectors/internal-audit/learn/brief-guide.html
