What is an internal audit good for?

Internal audits began to gradually take shape during World War II. Growth and expansion in connection with the transition into a war economy led to problems in the areas of control and operational efficiency. The transition into a war economy meant that responsibilities in the area of planning expanded, more raw materials and personnel were needed, and greater compliance with governmental decrees and more emphasis on cost identification were required. It became increasingly difficult for the company managers to visually monitor all operating areas and to have personal contact with subordinates. One of the ways to resolve these problems was to appoint special employees to monitor and verify what was going on and find the causes of identified problems. These people were called “internal auditors”.

Internal audit departments differed significantly in terms of the number of auditors, as well as in terms of the scope of the work performed. In some organizations, the internal auditors were assigned just to carry out routine control of financial and operating activities, while in others, the internal auditors were asked to assess and analyze more complex financial and operating activities.

With the increasing number of internal auditors, the demand for broader understanding and recognition of this activity increased. Internal auditors communicated with their colleagues in other organizations in order to share problems and promote common interests. These efforts culminated in the establishment of the Institute of Internal Auditors (IIA) in New York on 23 September 1941. The number of members increased from the 17 founding members to 104 by the end of 1941. Currently, the Institute associates more than 170,000 internal auditors from 165 countries worldwide. In spring 1995, the only professional organization of auditors in the Czech Republic was established: the Czech Institute of Internal Auditors (ČIIA), which currently associates more than 800 internal auditors.

The internal audit (IA) is currently defined as an independent, objective assurance and consulting activity designed to add value and improve processes in an organization. The internal audit thus helps the organization accomplish its objectives. It mainly uses the advantages of a systematic methodical approach to evaluate an organization’s management and administrative processes.

If an organization does not have optimally set processes, cannot efficiently manage risk and does not have sufficient information for decision-making, it can suffer significant losses. A well-functioning internal audit will ensure that management leads the organization in line with the procedures of a “careful manager”, thus maximizing the return of its funds invested by the owners. When performing this task, the internal auditors closely cooperate with the company management. The internal audit generally covers all areas of the given organization, including outsourced activities. The internal auditors verify many aspects of the given activity and suggest specific measures to improve them. They will also make sure that the measures are implemented within the specified deadline and will bring the required benefits to the organization.

A professionally managed internal audit department is a competitive advantage for business. Thanks to the internal audit, the management is informed about imminent problems in a timely manner, but also has a “customized” solution available based on the size and nature of the organization.

• Are you bothered by the answers to these questions?
• Does your organization face frequent operating losses?
• Do you lack objective and independent information about your business?
• Are you uncertain about the efficiency of funds spent on external consulting services?

If you answered yes, the right solution for you is to establish an internal audit department. For those clients who do not have an internal audit yet, APOGEO can provide its establishment and setting. We also help select appropriate candidates to work in the internal audit department. Thanks to our support, the client will save time and money, and can rest assured that the implemented model complies with well-established procedures.

Organizations where an internal audit department has been established in recent years experience a diametrically different situation. The directors and owners of these organizations often ask whether the large amounts of money spent on internal audits bring the value that the internal audit adds to the organization. The answer is a complex evaluation of the internal audit department’s performance efficiency that can reveal reserves in the work of internal auditors and can help clients answer the following questions:

• Does “my” internal audit focus on really key areas of my business?
• What are the professional qualifications of my internal auditors?

An optimally managed internal audit department can actively (and on a partnership basis) affect and improve the individual processes and the entire company management system. There are many cases in practice when the internal audit’s recommendations resulted in a revolutionary change of the applied procedures and in significant savings. The development of the internal audit profession in recent years has led to greater importance of its consulting role, as this adds tangible value to the organization. Every good internal auditor can propose highly specific “customized” recommendations for identified problems. An advantage of internal audits over external consultants is knowledge of the given organization’s environment. Internal audits therefore offer company owners a higher ratio of added value to costs spent. Consider whether you need an internal audit in your company!

Dr. Antonín Šenfeld
Manager Forensic & Special Services