Role of internal auditor in internal control system of companies

Internal auditors deal with issues that are fundamentally important to the survival and prosperity of any organisation. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organisation. Internal auditors work with management to systematically review systems and operations. These reviews (audits) are aimed at
identifying how well risks are managed including whether the right processes are in place, and whether agreed procedures are being adhered to. Audits can also identify areas where efficiency can be improved and innovations made. Internal audits are organised under an ongoing programme of review and advisory activity based on the strategic needs of an organisation. 

According to the International Standards for the Professional Practice of Internal Auditing internal auditing is defined as 'an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes'. Internal audit work is risk-based and encompasses both financial and non-financial operations of the organization. Internal auditors work within businesses and organisations to monitor and evaluate how well risks are being managed, the business is being governed and internal processes are working.

The scope and nature of audits can vary significantly but the main priority of the work is to make sure any issues that affect the survival and prosperity of the business are dealt with. The work of an internal auditor differs to that of external auditors as they look at more than financial and accounting risks. Their work helps the senior management to provide evidence that they are managing the business effectively. In a broad sense, we may allocate the total work time of an internal auditor into the following four categories: (a)fact finding,(b)preparing departmental work flowchart(for each department),(c)timely reviewing the flowchart and (d)ensuring that work flowchart is followed in day to day activities.

Fact-finding is defined as gathering information and identifying important details. An example of fact-finding is when an internal auditor is examines related documents and interviews witnesses to try to put together what happened. During the fact finding process, auditor should document matters which are important in providing evidence to support the audit opinion and evidence that the audit was carried out in applicable guidelines. In the audit report, auditor should disclose the facts, consequences and recommendations for improvement of internal system.

A flowchart is a picture of the separate steps of a process in sequential order. Flow chart is used to develop understanding of how a process is done, to study a process for improvement, to communicate to others how a process is done, when better communication is needed between people involved with the same process.

Internal audit team is required to examine the flowchart for every activity. One department may perform more than one activity; in that case, that department must follow more than one flowchart. Flow chart should be approved by the Board Audit Committee or Board of Directors.

A System Review includes determining whether the departmental work flowchart is designed to provide the firm with reasonable assurance of performing in conformity with applicable rules, in all material respects. In a System Review, the internal auditor will study and evaluate departmental policies and procedures. This includes interviewing firm personnel and examining relevant documents. To evaluate the effectiveness of the system and the degree of compliance with the system, the reviewer will test the departmental functions. 

In a sound system, employee in each department must follow approved guideline. Internal auditor will be ensured that approved policy/guidelines are followed in day to day operation. If there is any deviation, that would be informed to the higher authority. Hard work by the management team will be required to establish a sound operational system within the organisation. Many organisations are committed to the philosophy of continuous improvement. This involves continually assessing and reassessing not only the outcomes of business processes but also the processes and systems themselves to see what improvements can be made to streamline and improve methods.

Internal audit's role now extends beyond financial control matters. It is playing a more prominent and proactive role in non-financial reporting - for example, in sustainability reporting. It has taken on a much broader role vis-à-vis emerging risks in the areas of information technology (IT), and compliance and corruption. Finally, internal audit's role is to increasingly advise companies on governance processes.

All organisational governance models recognise the central role of management as one of the drivers of organisational governance. Management's influence on the quality of governance is significant. Management is responsible for monitoring organisational risks and implementing controls to mitigate such risks. The potential tensions that might exist is in having internal audit serve two Masters, as shown in the side table.

Recommendations: 

--BSEC, ICAB, ICMAB, Institute of Internal Auditors Bangladesh(IIAB) may arrange training programmes for Internal Audit officers of various listed companies.

--Sector wise  Internal Audit guideline may be issued by respective Regulators.

--Full qualified or part qualified accountants may be recruited in Internal Audit.

--Internal Audit performance may be evaluated on the basis of their overall activities instead of fact findings.

(5)Internal Audit team will focus on internal system development.