ACCOUNTING & AUDITING
ARE YOU MAXIMIZING THE POTENTIAL OF YOUR INTERNAL AUDIT TEAM? By Don Carpenter, MSAcc/CPA
The internal audit function fulfills a unique mission within a business. Although internal auditors are generally employees of the organization, they are expected to bring an independent perspective to the evaluation of financial accuracy and internal controls. This unique role is reflected in the dual reporting lines that many internal audit departments operate under. Generally, the department will report internally either directly or indirectly to the chief financial officer or general counsel. In addition, the function may have a second reporting line directly to the Board of Directors, often via the audit committee. This second line serves to reinforce the independence of internal audit and allows the board to have direct visibility into company matters. Traditionally, the resources of internal audit have been dedicated to supporting the board’s fiduciary
responsibility, particularly financial statement integrity and legal compliance. From this perspective, the staff’s hours are typically focused within the following areas.
Policy and Procedure Compliance Given the function’s independence, it has been the responsibility of internal audit to conduct systematic, periodic reviews of compliance with the policies and procedures of the organization. After enactment of the Sarbanes-Oxley Act, the emphasis has been on compliance that is critical to financial statement accuracy. This can include verification of supporting transaction documentation and appropriate approvals, as well as review of non-routine accounting entries.
Fraud Investigation and Detection Most organizations have established hotlines to allow employees and third parties to report suspected fraud or similar irregularities. These
incidents are generally relayed to internal audit for investigation and verification. In addition, internal audit may proactively conduct reviews of sensitive areas to identify possible weaknesses, including segregation of duties, nepotism and appropriate access to the enterprises’ reporting systems. But with the accountability of organizations expanding to include such areas as environmental sustainability, cybersecurity, employee wellness and even philanthropy, a potential expansion of the role of internal audit should also be considered. As the mission of internal audit is redefined, it is necessary to consider existing talent and resources that have not been traditionally included in the function. A more expansive role for internal audit could include the following areas.
Don Carpenter is clinical professor of accounting at Baylor University. Contact him at Don_Carpenter@baylor.edu. Today's CPA March / April 2020 5
