Whether Internal Auditing is equally beneficial for Small and Medium Enterprise’s like Large Enterprises?
Recently one of my clients having turnover of approx..100 Cr asked a question whether Internal Auditing is equally beneficial for small and medium enterprises as it appears to be for large organisations? I could have replied to him immediately but I asked him to wait till the conclusion of our assignment and then ask this question from himself by evaluating the outcomes. I have experienced that if you discover any solution from yourself by applying different logics, techniques, any method or data evaluation then you feel great satisfaction rather than jumping directly to answers derived from instant sources. Do you agree with me?
Transformation of Internal Auditing in last few years
People’s feelings about Internal Auditing have changed significantly as compared to 20 year ago. Earlier Internal Auditing was supposed to check the compliance of Policies and Procedures, Detection of Fraud and Error, Checking of Compliance of law of land etc. We were expected to check lots of bills and vouchers, checking arithmetical accuracy, posting into correct accounts heads etc etc. Overall, this function was an additional layer of safeguard for the organisation after the Accounts. Accounts dept was the main coordination agency for Auditors. Other depts were rarely approached by Auditors about review or discussion.
Rapid growth of ERP software’s and value-added features in Microsoft Excel or Auditing software’s off-loaded some logical checking of Internal Auditors nowadays. Availability of database in ERP such as sales report, purchase report, Purchase orders reports, Material receipt report, Stock reports, Expense reports, database of vendors and debtors have given very hands to Internal Auditors and now they are able to handle the bigger audits in comparatively lesser time. Through the data mining auditors are able to check the patterns through different permutations and combinations. These are very helpful tools in testing of frauds too. Now the question arises that if most of the checking could be done through the system only then what Internal Auditors would be doing? Actually, crux lies here itself.
New Avenues in Internal Auditing
In the beginning some traditional Internal Auditors were worried about their future due to the ever increasing role of data analysis. But this data analytics work have actually strengthen them and moved them in next circle of energy creation for the organisation in form of value added services such as review of internal control framework, review of efficiency and effectiveness of the policies and procedures in achieving the goal of the organisation, review of management information system and review mechanism, In a nutshell Internal Auditing is helping the organisations in ensuring the harmony in thought deed and action by timely red flags about probable risk. While reviewing the controls Internal Auditing is ensuring that controls are minimum but effective. Unnecessary duplicity in controls are removed where they are not adding any value in the overall process. In a way Internal Auditing is not only reviewing the process but it is also reviewing the performance. Internal Auditing can significantly reduce fraud by reducing the opportunity to fraudster. As we know that Fraud triangle have three components i.e. Motive, Opportunity and Rationale. Organisation may not have determining control on motive and rationale of the employees since these are more of personal qualities but definitely by having effective segregation of duty, proper supervision and effective preventive and detective controls opportunities may be reduced. Therefore, an effective audit system can definitely help in reducing the risk of fraud.
Nowadays many organisations work in cut-throat competition. Increasing competition has reduced the premium on pricing in many organisations. In this difficult situation Internal Auditing is helping the organisations in cost savings by suggesting productivity improvement tips or by deployment of resources where they give maximum returns.
Benefits for small and Medium Organisations
So, for the small and medium organisations are concerned, they get the benefit of experience of the Auditors. They can implement best practices prevailing in the industry. Nowadays Internal Auditors are not only looking into compliance of organisational policies but they are challenging the organisational policies too with better options. This beauty of experience is giving additional benefit to the organisations in exploring the unutilised potentials. In this way now auditors are not like back benchers focusing on shortcomings only rather they are business partners who are focusing on growth of the organisation. This changed role has attracted many newly qualified Chartered Accountants into the Auditing Field.
Challenges in Internal Auditing Process
However, all above mentioned rosy pictures of the Internal Auditing Profession are not very easy in reality. A person has to develop very difficult personality traits of scepticisms assertiveness, straightforwardness and agility to become a master in this field. Since they have to face a lot of resistance from process owners. Sometimes they have to face office politics too. However, by effective communication, genuine teamwork and coachability they succeed in their mission. In a number of times they do not get the reward or recognition which they deserve. But this hardly matters to them since they understand the significance of their role like a tea bag. They know that their role is like a tea bag once the tea is ready then its taste of the tea which matters to the customer not the tea bags.
By above facts it is clear that Internal Auditing is not merely fault-finding technique rather it is a tool for business development, cost control, improvement of people’s productivity and peace of mind by compliance of law of land.
Now we can imagine that these facts are not only relevant for bigger organisations but equally important for small and medium organisations too irrespective of the organisational size. Therefore, please do avail this facility to accelerate your business growth.