Strategically evaluating and managing business and control risk can encourage:
Organizations that evaluate and manage risk and control strategically as part of business operations not only lower their level of risk, but also create opportunities for valuable business planning. An internal audit can help you monitor organizational processes and internal controls, in order to be both effective and efficient.
The Definition of an Internal Audit
An internal audit is an independent, objective review of an organization’s internal controls, corporate governance and accounting processes and procedures. The main role of an internal audit is to reduce and mitigate risk, as well as improve operational performance, controls and governance processes.
Internal audit is a vital component of governance and strategic risk management. It provides an additional element to risk assessment across your organization, facilitates improved processes and controls, address regulatory or other compliance issues, and ensure processes are efficient through the COSO framework.
How to Use Internal Audit Resources
Internal audits can be used in a number of ways to help your organization remain effective and compliant:
Value of Internal Audit
Internal audits can take one of many forms, depending on the size, composition and skillset of available resources within your organization. It is possible to have an internal audit function entirely in-house. However, you must have year-round internal audit personnel with sufficient training and varied level of skills to perform the various value add activities of an internal audit function.
For other organizations, however, the importance of managing risk is met with a lack of staffing or expertise to truly completely implement an internal audit function. That’s where Eide Bailly can help reduce business risk.
Our internal audit professionals bring strong process, procedure, technical, internal control and risk management experience to your organization. We bridge these skills with specialized insight related to risk and compliance and specific industry knowledge to help your organization reduce risk and improve operational efficiency.
We can help you with your internal audit needs in the following ways:
Outsource: We provide the entire internal audit function during the internal audit cycle and report back with findings and opportunities. This also includes activities such as risk assessment and integration of the governance function.
Co-source: We work with your internal audit personnel to provide additional resources or expertise where needed. This could be providing experienced professionals to assist in completing your internal audit plan or providing specific resources to address business risks in more complex or unique areas (e.g., IT controls or cybersecurity, forensic reviews, industry-specific compliance monitoring, such as billing in healthcare or loan processes in banking).
As a trusted third-party advisor, we help businesses manage risk.
Risk assessment can be daunting. But an effective risk assessment ultimately results in a better understanding of an organization’s critical business and operational risks. Aligning these risks to specific objectives and business processes allows organizations to appropriately identify its business risks. This, in turn, results in a well-defined and efficient risk-based internal audit plan.
Here’s what you need to know about your organization’s risk assessment.
1. Know your organization’s internal and external operational, financial, strategic, compliance and general information security risks. Here's how to do it:
✓ Interview key members of senior management, the board of directors, the audit committee and other key employees about their opinion on the following topics:
✓ Observe daily activities within significant departments of your organization.
✓ Review important documentation such as board of directors’ meeting minutes, strategic reports, industry studies, contractual arrangements or other similar industry or company information.
2. Based on the knowledge and insight gained, utilize a risk assessment software, matrix or checklist to ultimately assign a risk ranking to your organization’s key risk areas. Here's how to do it:
✓ Determine your organization’s classification of key risk areas, as well as other operational or regulatory areas of risk.
✓ For each area, assess the individual area from the perspective of different risks, including financial, operational, liquidity, legal, compliance, human resources, reputational and fraud risk.
✓ Utilize a matrix or similar tool to consider these factors as a quantified risk score for each of the risk areas.
✓ Now that you have overall risk scores for each area, set your numeric scale to determine the area’s risk ranking of high, moderate or low. For example, risk scores of 7 to 9 could be high-risk areas, 4 to 6 could be moderate-risk areas, and 1 to 3 could be low-risk areas. There is variability in how this may be determined.
✓ Validate such risk rankings to ensure management and stakeholders believe the resulting assessments are reasonable.
3. Use the resulting risk rankings to determine your overall risk management or internal audit plan. Here's how to do it:
✓ Use this tool to tie your risk rankings to the internal audit frequency of the area. For example, high-risk areas could be audited annually, moderate-risk areas on a bi-annual basis and low-risk areas every three years.
✓ Keep in mind that the scale and frequency are subjective and should be appropriate based on past experience and resources within the organization.
When it comes to managing business risk, control and governance within your organization, it is not just about the financial requirements. An internal audit provides a tool to address and manage business, implement added accountability and improve your assessment and continuing measurement of risk and more.
Here, we break down the difference between an internal and a financial audit.
Reduce risk and improve business and operational controls, governance and performance.
Utilize internal audit in your risk management strategy today.