4 Ways an Internal Audit Can Minimize Risk to Your Company

Do you know why an internal audit is important for your business? Many entrepreneurs don’t understand what an internal audit is or why it’s a good investment for them. My colleague, Justin Gwin, CPA, CISA, specializes in internal audits and other risk advisory services. He was  kind enough to answer the following questions.

What is an internal audit?

An internal audit is an independent, objective assurance and consulting activity – designed to add value to an organization’s operations through systematic risk management and control evaluations. An internal auditor works with management to understand the strategic, operational, financial, and compliance objectives desired from the audit.

What are the benefits of an internal audit for my business?

An internal audit works to identify and mitigate risks that could impact your company’s desired objectives. Specifically, internal audits may identify issues impacting:

• Accurate processing
• Policies and procedures in place
• Safeguards against fraud risks
• Operational risks and information systems controls

An internal auditor can assist management in the decision to avoid, share, reduce, mitigate or accept risks (and can identify costs and benefits associated with each option). Owners can gain insight for improving processes, performance, controls, and risk management — and for reducing expenses, enhancing revenues, and increasing profits.

What are common problem areas for small businesses?

Four common problem areas can be identified by an internal auditor:

1. Segregation of duties

Small businesses often struggle to properly segregate duties between employees. The opportunity for errors or fraud is higher than in larger corporations where incompatible functions are often handled by different people. Internal auditors can identify where fraud risk exists and make recommendations to adequately mitigate such risks.

2. Monitoring key processes and controls

Senior management often focuses on running the company and may not place enough emphasis on monitoring key processes or controls. An internal audit can help monitor and reduce errors and fraud.

3. Recovering from employee turnover

Small businesses are often heavily reliant on key staff members with specialized knowledge or skills. Without proper documentation of their duties, the loss of certain employees can be difficult to overcome. Internal auditors can assist in developing proper documentation to describe job functions – capturing that information though tools such as narratives, flowcharts, and diagrams. This can minimize the loss of knowledge during employee transition. Documenting policies and procedures can clarify business operations and confirm alignment with management’s expectations.

4. Addressing potential IT security concerns

Small businesses often have weaker data security and IT controls than larger corporations. Specialized internal auditors can evaluate technical controls to assess the organization’s potential data security concerns.Internal auditors can bring a systematic, disciplined approach to managing your small business – by identifying, mitigating, and providing attention to risks that can affect your organization’s long-term goals.