Does your organization have an external board or body to which it must report? Are you a business owner with limited operational, financial, or advisory support? Does your company lack internal capabilities and could benefit from an external perspective? If you answered yes to any one of these questions, continue reading.
Even back in our childhood days on the playground, having someone to engage, challenge and share ideas with was preferred over being alone. Why is this? We are collaborative people by nature, and having someone provide insight, an opposing view, or someone to ask meaningful questions is considered valuable to any individual or organization. For most companies, this outside perspective can be established by instituting an internal audit function or engaging outside professionals.
What do internal auditors do, and what value do they bring? Internal auditors are independent professionals who provide objective assurance and consulting activities to add value and improve an organization's operations. With their years of experience and perspective, they can more easily identify gaps or inconsistencies that may not be obvious to employees due to their proximity to the organization.
How can internal auditors help improve your reputation in the market? Many leaders have experienced the unfortunate situation where significant deficiencies or material weaknesses have been reported along with annual audited financial statements to the board, a lender, or public shareholders. By establishing an internal group of professionals who implement internal controls and a solid internal control framework, the risk of this dreaded scenario is greatly reduced by allowing deficiencies to be identified and mitigated before they become reportable in a subsequent year.
Why do some companies choose to establish in-house internal audit departments? Private companies, especially startups, often set up an internal audit department to attract entrepreneurial talent. Typically, the owner or team of owners is laser-focused on obtaining funding and solidifying the product or service offering, leaving them little time to dedicate to establishing a controlled environment.
Internal audit departments are typically built with a Charter and an organizational mission at its core. Developing internal talent lends itself to cultural adaptations and institutional knowledge, which is hard to grasp for a consultant. Relationships and bonds are created when the internal audit personnel have been a part of the organization for some time. Having employees internal to the organization can help to provide a level of knowledge and possibly a level of comfort to people within the organization that an outsider may not possess.
Why do some companies seek out external consultants instead?
External consultants are brought onto a project(s) to execute when the organization may not have the skill set or resources available. Other benefits of hiring a contractor include expertise either in an area of practice or industry, objective approach or opinion, and benchmarking/best practice ability given that they work with a variety of clients. These skills come at a cost; consultants are not cheap. But what an organization may pay in price will be a fraction of the overall return on investment they will receive.
Although we listed it as a benefit above, being an internal resource may also lend itself to bias or avoidance. Internal auditors claim to be independent or unbiased, but the reality is that they work for the organization and that can sway them one way or the other. Full-time auditors may try to mitigate organizational liability and minimize the risk of negative publicity.
So why do some organizations make decisions or forge paths without any guidance or external support? It may be because up to this point, they have found success by running off instinct. At any given time, however, success or instinct may wane, and finding external counsel may be necessary. Specific skills may be needed, or compliance issues may become larger than they once were at the organization’s inception. Leadership may be burnt out and hiring an outside perspective may be exactly what they need to get over the slump.
Whether your company sets up an internal audit department or hires external consultants, internal auditors can promote accountability and transparency within an organization. They achieve this by conducting independent assessments of the organization's operations, including financial reporting and other regulatory areas. They will remain objective, by providing an independent unbiased view adding value to your organization. By prioritizing risks and ensuring compliance with all relevant laws and regulations, internal audit provides an organization with the assurance that risks are effectively managed and mitigated.
Are you considering whether your organization could benefit from an internal audit? Contact us and we will connect you with one of our Risk Advisory professionals to discuss if an internal audit might be the right step for you.
