What is an internal audit?
While financial investigations may spring to mind when you hear the term audit, there are several types of auditing processes, including an internal audit. Please keep reading to learn more about what an internal audit is, how it differs from an external audit, and what to expect. Internal audit definition  An internal audit is an unbiased review of a companys processes, systems, and procedures. Rather than having an outside consultant or specialist conduct this review, an internal audit is performed by professionals within the company. This could be an individual auditor, auditing department, or specialty organization. Here are just a few areas that an internal audit might focus on:  Operational risks  Environmental compliance  Corporate responsibility  Procedural efficiency  Effectiveness of systems  Health and safety compliance  Fraud protection  The internal audit team gathers information about the companys various processes to see whats working well and where there may be areas of risk. This information is then compiled into a comprehensive report, along with any accompanying recommendations. Audit outcomes are presented to senior leadership, who can then implement these recommended changes. Any members of an internal audit team must be entirely unbiased for the audit to be valid. In larger organizations, there is usually a standalone audit department specifically for this purpose. Internal audits are ordered at the top level, typically by the CEO or board of directors. The audit team works closely with senior management to review critical processes within the organization. An internal audit might cover just one area of the organization, like IT development, or it could be a general assessment of the companys strengths and weaknesses. The main goal or function is to identify risks within the companys internal environment. By tackling this task internally, problems can be fixed before they cause any external damage or liability to stakeholders. Its essentially a way to get ahead of the curve with a proactive risk assessment process. Apart from highlighting risks, the internal audit function includes highlighting areas where a companys efficiency could be improved or where money could be saved. Internal audit vs. external audit  While the outcomes might be similar, internal and external audits differ in a few ways. Internal audits:  Are performed by internal auditors, often company employees  Results are reported to the Board of Directors and senior management  The audit covers internal controls pertaining to risk management and process improvement  The audit is performed to assess risk and improve efficiency  Can be performed at any frequency  External audits:  Are performed by outside auditors, often from a CPA firm  Results are reported to outside entities and shareholders  Covers financial reports  The audit is performed to validate financial reports for stakeholders benefit  Usually performed annually  Internal audit process  No matter the internal audit function, the process is generally the same:  Step 1: Planning  During this initial phase or step of the internal audit process, the audit team carefully defines the investigations objectives. Any relevant guidance or regulations will be reviewed in-depth to lay the groundwork for the audit. A realistic timeline for the audit will be set and shared with management. Step 2: Investigating  This is the active phase of the audit, when the team performs any research or relevant investigations. They carry out the audit plan according to the prearranged timeline, conducting interviews, reviewing documents, and testing controls. During this investigative phase, statistics are recorded, and observations are made. Step 3: Reporting  Having concluded the active stage of the audit, its the audit teams job to compile an internal audit report. Any results of the investigation should be presented in this written report. When risks or trouble spots are identified, these should be accompanied by actionable recommendations. Step 4: Following Up  The process isnt finished with the delivery of the internal audit report. The report should be presented to the senior leadership team, with the opportunity for a question and answer session after the presentation. Beyond this point, the audit team must conduct follow-up with appropriate parties to implement any recommendations that have been made. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.