An Internal Auditing is a self-governing, consultant, and intentioned assurance task designed to improve and add value to the operation of the organization. Internal Auditing is an essential aspect of organizational assessment that support a firm is bringing about its goals by bringing disciplined and methodical strategy in evaluating and improving the effectiveness of control, governance, and risk management (Premier & Cabinet: Division of Local Government 2010, p. 8). In simple terms, Internal Auditing can be understood as the essential aspect of organizational assessment that is responsible for monitoring the efficiency of the internal control procedures that have been designed by the management of the organization. Internal Audit monitors the efficiency of the in-house controls in various. The ways include risk assessment, documentation and process walkthroughs, control assessment, testing, and reporting. Risk assessment is essential in prioritizing and identifying areas or procedures that need audit focus and attention. Documentation and process walkthroughs help in gaining an understanding the procedures as they exist in the organization. Controlling assessment plays a key role in identifying gaps and looking for ways of designing and rectifying the gaps. Testing is also important in verifying if the controls are working. Reporting provides recommendations and observations to improve the procedures and controls within the organization. Understanding all these will help us understand whether or not Internal Audit does indeed add value to an organization.
Keywords: Internal Auditing, Organization, assessment, procedures, processes, documentation, risk, management
In the past, internal auditing was being observed as the aspect of monitory function. According to Morgan (1979, p. 161), an internal audit was being observed as the organizational watchman and policemen, and was accepted as the essential aspect of the managerial control but considered acquiescent to the attainment of key mutual goals. An assessment of the forces from different areas of the world on the need of the in-house audit in the recent areas suggests that an in-house audit adds value to the organization (Spira & Page, 2003).
Many organizations, large and small, need to establish Internal Auditing functions for the realization of the operations of their organizations (Premier & Cabinet: Division of Local Government 2010, p. 8). Most large firms such as governmental agencies, major institutions, States, Local Governments, and Federals have identified and realized the need for establishing Internal Auditing functions. Job prospects, other than Internal Auditors (IA), such as Compliance Officers (CO), Internal Consultants (IC), Operations Analysts (OA), or Quality Assurance Managers (QAM) are sometimes given an opportunity to perform the Internal Auditing tasks. Regardless of the job prospect or position in the named professions, it is the trait of service that categorizes it as an Internal Audit. From the firms viewpoint, Internal Auditors (IA) serves in self-assessing or self-evaluating functions. IA compared the existing circumstances to the expected standards and provided views on how to achieve the goals of the organization (Copnell, 2004).
It is often an explicit requirement and common expectation that entities have a well-designed system of in-house control for the operation of firms. The requirements may take a form of regulatory guideline, fiduciary responsibility, grant or contract compliance requirements. The ultimate and direct responsibility for an internal control often falls with the management of the organization. However, the bottom-line responsibility is often attributed to the forefront individuality. The oversight board such as trustees and directors are responsible for oversight and guidance. Management in the organization must consider the responsibility and run the considerable risk of failure of funding, regulatory scrutiny, or contractual penalties (Cascarino & Van, 2007).
An internal control involves various aspects such as processes, systems, and actions. The aspect of processes involves organizing, planning, controlling, and directing operations of the organization. The aspect of a system involves measuring, monitoring, and reporting the performance of an organization. The aspect of action is taken by the management of the organization or any other parties to increase the like-hood and facilitate risk-management that designed goals and objectives that need to be achieved in an organization (Cascarino & Van, 2005).
An internal auditing is an essential part of the organization. Where there is an internal auditing in an organization, the audit committee is required to reflect annually on the requirement for an internal audit purpose and align the recommendations to the board (Student Accountant 2012, p. 1). The directional control chat below depicts a simple guide that helps in understanding how the internal auditing adds values to an organization:
(Student Accountant 2012, p. 1)
Therefore, the essay paper explains whether or not Internal Auditing adds value to an organization. The essay paper answers the subject matter by using different case studies and scenes, thus providing a vivid description of the need for Internal Auditors in an organization. Also, the paper will provide few reasons why some organizations discourage Internal Auditing without understanding the effects of lack of Internal Auditors in the organizations. Lastly, the paper will give a conclusion that will provide my stand on whether Internal Auditing adds values to an organization or not.
Internal Auditing adds value to an organization
Transport for London (TfL) is an organization established in 2000 responsible for the transport strategy. The organization offers river, underground, cycle, and river services to a population of about 8.4 million people in London. Previously, the organization recorded 1.26 billion journeys in 2014 on the underground, thus resulting in an annual income that was close to 5 billion pounds (Peters 2015, p. 4). To deliver all the services to about 8.4 million people in London, the company developed various determined projects most particularly Crossrail that will offer about 73 mile East-West rail route in the region of London (Audit & Assurance Committee, 2014).
The project is targeted to start by 2018 at a cost reaching 16 billion pounds. To attain this goal, the company realized the need for Internal Auditing of the performance of the organization. The Director of the Internal Audit, (Clive Walker), was assigned the responsibility of managing an in-house task based in the Transport for Londons key offices in the Westminster. The company restructured its Internal Audit leading to a reduction in headcount by 25%. Walker opted to take more duties and responsibilities. Currently, the company has a headcount of about 58% (Peters 2015, p. 4).
Restructuring of the Internal Audit has enabled the organization to merge its pledge services to not only offer a coordinated but also an integrated approach. Currently, the Health, Safety, Environment, and Technical Team (HSE&T) reports to the Director of the Internal Auditor, Walker. This indicates that the assurance providers in the organization are working closely to focus upon the assessment and management of risks (Peters 2015, p. 4), thus adding value to the Transport for London Organization.
Transport for London (TfL) Company has benefited from the need for Internal Auditing. An in-house group performing the auditing tasks works in the same spot, thus being easy to share issues, problems, ideas, and information. Regular informal and formal discussion expands a better comprehension of the business and facilitates learning to expand the overall efficiency of the performance. Also, the organization realized that Internal Auditing adds value to the organization in such a way that the process reports the issues affecting the performance of the organization. The Internal Auditing has enabled the organization to form experienced teams that can handle various issues, thus improving the performance of the organization, and this has led the organization in achieving its goals (Peters 2015, p. 4).
The organization adopted a unified Internal Audit plan with an established methodology of carrying out the Internal Audit plan. The plan is essential for the organization because when there is a need for team discussion, decisions can be reached in a more easy way due to the experienced Internal Auditors in the organization. Having a large team of Internal Auditors in the organization has provided a vivid identity and profile of the Transport for London (TfL) Organization, thus making the Internal Audit team being part of the TfT organizations culture.
Uphold an in-house team has permitted the retention and building of knowledge and ideas regarding the Transport for London Organization, which permits Internal Audit to be valued and appreciated by the business sector of the organization. Any annual financial statement that is part of the central management costs of the Transport for London Organization means that individuals who may want guidance and advice on the consultancy basis do not have to be afraid since the company has experienced Internal Auditors that can respond to the risk management and control of the annual budget for the organization (Peters 2015, p. 4).
Besides, BT Group Pl. (BT) is a different organization that realized the need for Internal Auditing, and Internal Auditing has added value to the organization (BT Group Plc. 2016). BTs Director of the Internal Auditing and Enterprise Risk Management (BTDIA&ERM), James Grigor, developed a team of about 70 Internal Auditors that are located in the United Kingdom with the majority of the auditors working in local offices or homes. Currently, the organization has small teams located in Argentina and India, and the organization is looking forward to expanding its internal team auditors. Today, an in-house team covers various regions such as the North America, United Kingdom, and Europe. The regional team covers Latin America and India (BT Group Plc. 2013).
The company is the largest firm located in the United Kingdom, and it provides communication services. The BT Company had annual revenue of about 18 billion pounds and employed more than 88, 000 people across the world with customers from about 170 countries across the world. BT Company achieved the illustrated statistics through the realization of the need for Internal Auditing, and the Internal Auditing has added value to the organization. The in-house team built a comprehensive understanding of the sector and business. The in-house team has a singular spotlight on the risks and strategic objectives of the organization. The program of work of the in-house team or the auditing team is built on an issue informed basis and make certain that all the key static and dynamic risks are addressed (Peters 2015, p. 5).
The BT Company realized the benefits of having the Internal Audit team and structured the audit team to have an independent profile that will be working towards the shared priorities. Employees and senior managers developed trust and confidence in the aspect of Internal Auditing as it is part of the organizational culture and structure. Having an in-house Internal Auditing task is the reflection of the organizational commitment and culture to effective risk management, control, and governance (Peters 2015, p. 6).
The BT Company believes that Internal Auditing add value to the organization and they expect and understand that Internal Auditing will be involved in key areas of development and growth of the company. According to the company, the Internal Auditing provides support and advice on the informal and formal basis (Peters 2015, 7). The BTs Internal Audit do not indict vanguard regions of the business since the Internal Audit agreed on the aspect of the centralized budget, thus improving the performance of the organization. Managers in the BT Company appreciate the need for the Internal Audit, and they feel that they can approach the Internal Audit office for advice, guidance, and assurance reviews without being discouraged by being indicted.
Also, the BT realized that the need for Internal Audit add value to the organization since the Internal Auditors have the capacity to develop and improve their careers within the culture of the organization. Moreover, the company appreciates the need for the Internal Auditors because the auditors can develop professional expertise regarding the business requirement such as data security, finance, and IT. The BT Company encourages the Internal Auditors to go into business construction, both the control and risk culture of the firm and alertness of the responsibilities of the Internal Audit so that it is considered as the essential partner in the change of the organization. These are the essential factors when a group of auditors is required, for instance, in coordinating assurance with other existing assurance providers and improving the assurance map.
The company has an audit group that is entirely based on the single central positions, and the teams provide responsiveness and flexibility while keeping the charges down. The charges can be the cost that can be used when recruiting the external auditors. Working from the local...
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