Art of Internal Auditing

Now, the world is in twenty first century, everywhere changes could be visualised but with respect to accounting, auditing etc, where is the change?  Modern organisations have become more sophisticated and thus resulted in decentralisation of their activities and consequently the top management is remotely concerned with the day to dayactivities of the Organisation. With this backdrop the internal auditing has acquired a great deal of significance. The following are my opinion about modern Internal Audits. Let us see what it is……..

1.      The real “Watch Dog”

The internal auditor must be an independent dictator to the internal-auditee with respect to his professional responsibilities. He must be a WATCH DOG which will always have third eye to protect the internal auditee from all kinds of financial frauds and threats. Internal Auditors can always gather information for his Internal-Auditee and could continuously forward the same to the management for the benefit of the organisation. Having improved technology of emails and internet, it is quite possible to send meaning full messages to the auditee. An Internal Auditor must give fraud free environment as believed in general to the extent professionally possible.

2.      Catch by Surprise:

Traditional internal audits deals only with ticking on the vouchers, verifying the reconciliation statements and reviewing the invoices etc, periodically. But to be effective an internal audit it must catch things by surprise. The internal auditor has to visit the internal auditee’s premise by surprise, without intimation for visiting them. It is human tendency that once they think that our internal auditor can come and verify at any time, the idea of committing mistakes and frauds will be very much minimal. It is pertinent to note that the modern man is always wise, so it is important for the business people to place controls points and periodical checks to avoid malpractices and relevant issues vested with.

3.      Peace of Mind for Management

The satisfaction level of the organisation ought to be high that their internal auditors are there to deal, whatever maybe the issue vested with the business. The peace of mind is the most wonderful aspect which the modern world forgets often.

4. Cyber Threat & Internal Controls.

In this twenty first century, the business world is only on clicking the website for the business. These days, shows that every business requires some sort of computer and its resources along with internet facilities. Unlikeaccounting in the notes books, we are accounting by way of software in various names like SAP, ERP, Tally and in house packages. Of course without this it is very difficult to survive specifically in India wherein numerous legislations and regulations for business entities and serious consequences for non compliance of the same laid out. Even from weigh bridge to currency counting, we have software along with hardware. Sometimes we have to think where we are in that, since the element of human intervention is very less. This is prone to frauds and misappropriations etc. Recently when somebody asks the banker about clarification of interest credit in his account, he got the reply that “sir everything is done by the software so we don’t know about how it works, you have to approach our head office”

The duty of the Internal Auditors are not only doing audit internally but also to cover the external fraudulent approaches against the company to the extent possible. Disaster and crisis can provide unbelievable opportunity for perpetrating frauds and a fraud can be very easily camouflaged and it is very easy to fall into trap of believing what one sees. Thus, in situations of disaster and crisis, the internal auditor must not fall into the trap of believing and depending only on what is apparent, unless he has estimated every other possibility. In the required situations the internal auditors has to use the ‘mistrust the obvious’.

5.      Scope Unlimited

It is always questioned by the Internal Auditors for taking the assignment that what is our scope? It is fine, if the organisation wants only a portion of its works to be audited internally. But in general the internal auditors should be given unlimited scope to deal with the organisation to find out various ideas and improvements for the business. It is obvious that once we restrict our mind with respect to a thing, then physiologically we cannot look into other aspects, which perhaps very import or favourable to the organisation. Once the restriction given, then ‘thinking outside the box’ by the internal auditor will surly run away from his mind except the audit fees.

6.      Revenue Leakage & Cost Control

It is another important duty which a prudent enterprise will always expect from an Internal Auditor that, how to reduce cost of its products? Is there any revenue leakages? It is only possible that, if the internal auditor does his jobs with passion the enterprise will get good output or else it has to read the dump delivered by them.Identifying the revenue leakages and controlling the cost is an art, which has to be seen with clear mind and without any scope restrictions. The organisations must select the right internal auditors who can do this persistently.

7.      Alternative Ideas & Suggestion

Often it is understood by the Internal Auditors that, their works comes to an end when they verify the financial accounting and its relevant records. It is not so because it is only a 10% of the job expected. But an internal auditor must look into various aspects namely, Income-tax planning, service tax opinions, other indirect tax matters, systems monitoring, developing standard operating procedures etc. It could be noticed that many time the organisation will fails to utilize its funds in a proper ways to get optimum benefits. This also could be expected to highlighted by the Internal Auditors

8.      The Financial Guard

The approach of the Internal Auditors must be like guarding the business and giving peace of mind to the management so that they can think over development of its business or new business etc. Every technological usage and improvements in the financial sector has equal quantum of risks and frauds which must be targeted by the Internal Auditors

9.      The End

It is disgusted that 95% of the internal audits ends only with a report but whether the reports are read by the management or discussed is remains unknown. When this reach is failed the entire system consequently fails. An effective internal audit must be crystal clear about bring the points to the management/concerned authorise and implement the right decision and method in right time. Those who indented to enjoy the benefit of having Internal Auditors must read his report in depth and fight with him for the best things out of him for the benefit of the organisation. At every internal audit end, there must be a meeting and it must be with concerned departments and all the findings of the Internal Auditor must be discussed details and decisions to be taken on the spot. This is the right approach, than sending report to the management and they will wait for sometime by then next set of internal audit would have got over.