Unless you run your business as a sole proprietor, then you have to put your trust in the people who are working for you. There is a lot of advice out there that talks about the importance of hiring decisions, and making sure that you have the right candidates with the skills and integrity necessary to ensure the safety of your business’ assets. Unfortunately, that is where most business leaders stop, and from there they have blind trust in their employees. That is until something goes wrong, and the business is left trying to figure out what happened and why no one caught the issue.
In 2013, the New York Stock Exchange required listed companies to have an internal audit function. The NYSE saw the value that internal audit can bring to an organization that even the best external audit firms cannot provide. By having an internal team with the sole mission of assuring that the most risky elements and functions of the business are operating smoothly, officers and directors have peace of mind. When allowed to function as intended, internal audit not only provides assurance that the business is meeting strategic goals, but they are able to detect tactical deficiencies early and help get functions back on track.
Businesses of all sizes and in all industries can benefit from internal audit as well. An effective internal audit function will look at the enterprise as a whole and assess where risks are the highest. While accounting and finance operations typically rank high on that list, other functional operations may pose a significant risk as well. For instance, internal auditors may assess the training for and execution of a sales program to ensure that the sales function is sticking to company policies and procedures, thus reducing the risk for customer returns and refunds. Another example may be looking at the expenditure of restricted funds by a non-profit organization to ensure programs are meeting funding requirements, thus ensuring continued funding opportunities.
Even the smallest entities can benefit from an internal audit function, even if that function is an outsourced service. Take, for example, a service-based business with a small administrative staff. They may only have one individual who does all of the bookkeeping and accounting functions. This is a common occurrence for many small businesses. In this case, an outsourced internal audit service can make periodic checks of the accounting functions throughout the year to ensure accounting records are accurate and transparent. In addition, the internal auditors can provide recommendations for the accounting staff member that result in more efficient processing of accounting transactions.
If you are a small business owner, there are three simple questions that you can ask yourself to determine if an internal audit service may be right for you.
- Do you have a separate member of your accounting staff who handles each of the following responsibilities: accounts payable, accounts receivable, payroll, account reconciliation, and financial reporting?
- Do you always get clear and concise explanations to business-related questions you pose to your managers about their respective area of responsibility?
- Have you conducted a risk assessment in the last three years that identifies your internal and external risks?
If you answered no to any of these questions, then I recommend you speak to an internal audit service firm to find out how you can get assurance that your business is running at its optimal state.