AUDIT OF THE FINANCE DEPARTMENT

An audit of the finance department should determine whether or not the
function’s current services are appropriate, whether organizational
performance is continuously being optimized, whether management and
finance are working together, and whether finance is helping the
enterprise recognize and respond to new business opportunities as they
arise.

There are many issues worth exploring in an audit of finance; I
discuss four of the important areas below. The audit team will need to
complete a comprehensive audit plan to determine the correct focus and
priorities for an internal audit of the finance function.

(1) Strategy Development
Does the finance function help management define, and agree upon,
strategy? Does it help with implementation of that strategy, including
management’s recognition of, and response to, new and emerging
business opportunities?

(2) Budgeting
Do budgeting processes support the assignment of management
accountability and monitoring of performance? The audit team should
investigate whether the finance function helps top management with
forward-looking analyses of the numbers and by forging strong ties
between accounting information, budget formulation and capital
investment, and strategic planning and implementation.

(3) Financial Systems and Processes
Are there appropriate systems, policies, procedures, and guidelines
relating to financial management? How successful is the finance
department in meeting business needs?

Has the finance team done everything necessary to get a grip on the
organization’s preparedness and the organization’s financial needs?
While everyone is trying to forecast the next disaster to “handle”, in
my view, process improvement and constantly strengthening the
company’s key capabilities is a vital long-term approach to improving
resiliency and overall performance.

(4) Accounting
Do the financial practices of the organization meet generally-accepted
and industry-accepted financial management standards? Compliance with
accounting and auditing standards is important, and an internal audit
of finance should usually include a review of the organization’s
accounting policies and practices. Where departures in accounting
policy or practice do arise—and sometimes an exception to common
practice does make sense for a specific company—has that departure
been explained and approved by the proper managers?


Organizations Must Proactively Improve Capabilities

An internal audit of finance should foremost identify key improvement
opportunities. The audit should confirm long-term finance needs (aka
financial management and treasury management) are identified and being
addressed. Equally important, the audit should make sure the finance
department can track all the dollars floating around the company. Is
cash management and bookkeeping strong? What can be improved?

Lastly, the audit should investigate who is driving organizational
capability improvement efforts and assess whether those efforts are
working well. Finance is not only about internal control over
financial reporting, nor is it only about quarterly and annual
reporting; while these activities are important, they do not
significantly affect long-term value creation. A good finance function
is about much more than that. A good audit of the finance function is
about much more than that, too.
Dan Swanson is a 26-year internal audit veteran, who was formerly the
Director of Professional Practices at the Institute of Internal Audito


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CA Ramachandran Mahadevan,M.Com.,F.C.A.,