Common Pitfalls that can Derail Internal Audit

Internal Audit is an evaluation and examination process in which the organizations go under a thorough procedure to point out the errors and mistakes in various departments and units. It also helps in looking at risk management, internal controls, and corporate governance process in a detailed manner. The need for internal audit in business arises when the company wants to review its procedures and whether it is working in the right direction of achieving the set goals and aims.

Common pitfalls in Internal Audit

Internal audits can be extremely beneficial for observing the streamline processes in the entity. It can help in identifying any gaps and finding any case of fraud or forgery in the company. But at times even with proper planning there can be common pitfalls in internal audit function that can derail the benefits and accuracy of the process and can post challenges to the company. Some common pitfalls in internal audit are as follows-

  • Rapid expansion of scope or scope creeps:For a successful internal audit in the organization, the key is the definition of scope and proper planning of the audit. Due to the workflows in the company and complex systems, it can be possible that the audit scope may expand at a rapid rate which is a common pitfall in internal audit. Therefore, the auditors must be sure to plan for the audit proactively in scenarios where an occurred issue can affect the scope. Allowing the audit scope to increase can have worse effects and the auditor may realize at later stages that the whole audit purpose has been carried away from the basic auditing for all the procedures in the company. Therefore it is better to stop at the very beginning where the scope has started to expand. 
  • No communication with the stakeholders or clients: One of the most common pitfalls in Internal Audit is that at an important event like internal auditing of the company, the clients and the stakeholders of the entity are usually not intimated. Therefore the auditor must assure that they are properly communicated. Apart from the team leads and managers of various departments, the auditor must talk or interact with the engineers, employees, staff members of the company as well. This must be done as the processes used in reality can be slightly different from what has been documented or what the management has understood.
  • When data is not reviewed: During an audit whenever the data is required it must be asked from the department or unit that is being audited. But how can the accuracy and reliability of the data be considered by the auditor? For removing this common pitfall in Internal Audit, the auditor must sit with the data provider or DBA for understanding the generated data thoroughly. Various questions regarding the data and the records must be asked for transparency.
  • Independence and objectivity of Internal Audit: In smaller organizations, it is very difficult to attain independence and objectivity of the internal audit function. But in larger entities, the auditors have to report directly to the audit committee and the board of directors in the company, therefore, assuring that the audit is independent and fulfills the objectives of the internal audit. Whereas, in small organizations the auditor provides internal audit reporting to the same person or group, again and again, making it a common pitfall in the internal audit function.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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