Joanne O’Donnell explains the benefits of subjecting company processes to an internal audit review, and how to go about planning and undertaking the exercise
This article was first published in the April 2020 UK edition of Accounting and Business magazine.
Continuous improvement is essential to success in business, and an internal audit review is one action a growing business should consider. Whether you employ an in-house internal auditor or a third-party provider of audit services to conduct the review, the exercise can help to highlight any flaws in your business approach.
For example, they can spot risks at an early stage, ensure that processes are being followed and are still effective and relevant, and oversee the quality and consistency of the business’s output.
There are some basic steps to follow to set off in the right direction. First, the planning. You should make a list of the business areas you need to have audited. These may include:
- purchase order and purchase invoice processes
- sales order and sales invoice processes, and the sales quote process
- the preparation and production of manufactured items and the finish/quality-control process
- the stock and shipping processes
- IT and security
- human resources
- accounting, including payroll and expenses processes.
The frequency of the audit of each of these areas will depend on your business, but it is good practice to set up an internal auditing calendar for the year to ensure audits are completed on time and with sufficient frequency. The calendar can also contain any vital information that the internal auditor will need, such as the process documents, so that they can review how the processes should be followed and draft relevant questions before they observe the processes in action. The calendar does not need to be anything fancy, but it does need to be implemented to keep everyone on track.
The internal auditor’s first job will be to speak to the relevant employees to understand the processes they follow. They will then monitor employees performing a given process, preferably in a real-life scenario (ie doing a task that needs to be done on that day).
Asking the employee questions about the task they are performing will give the auditor insight as to whether the staff member is following the process properly and understands it and the risks it is designed to mitigate. Depending on the answers given, the auditor can make note of any areas that may need refresher sessions, or aspects of the process that may not have aged well, such as practices that haven’t changed to take advantage of new technologies.
The internal auditor will then write up a report highlighting any findings or issues. Again, this need not be fancy – it can be as simple or as detailed as you require, so long as the findings are recorded. In the event that the internal auditor finds a process non-compliant, they will need to recommend further measures in an action plan. They may also need to raise a non-compliance report, depending on the nature of the business and its quality compliance measures and recognitions.
The action plan can be presented to the appropriate heads of departments. The plan should include the findings, the corrective actions, who will take ownership of implementing the corrective actions and the deadline for doing so. There should also be a follow-up date to ensure the corrective actions have been applied.
With these interventions in place, the process of internal auditing will be a benefit to any business, and should be implemented as a critical procedure, not simply as something to be ticked off.
Joanne O’Donnell develops the quality strategy, policies, processes and systems for HTL Group and its supply chain.
"An internal audit review should be implemented as a critical procedure, not simply as something to be ticked off the list"