Cost and benefits of internal audit?

Answer 1

Internal audit can be beneficial to most organizations because, if planned properly, it provides management with a methodology to identify those risks that may prevent the organization from meeting its objectives. For example, if a company has a strategic objective to raise $20 million in loans to build a new facility there are a number of risks that may prevent that from occurring. One risk may be the external factor of increased interest rates. Another risk may be internal risk that management does not qualify for credit because of covenants they will not be able to meet. Financial costs of internal audit will vary based upon the size and goal of the internal audit function. Additionally, the cost will be based upon the resources used to perform the work (outsource, co-source, in-house). The most significant non-financial cost may be a negative reputation of the internal audit role throughout the organization. If the function is not properly established, socialized and executed then the validity of the function could be jeopardized. Internal audit can be a value-add activity but often times it is strictly a policing function, which is sadly an example when the cost of internal audit usually does not exceed its benefit.

Answer 2

Generally speaking, internal controls within a business is often the function of the organization's auditing department. With that said, it's quite common to find the auditing and accounting departments closely tied or working together to ensure that all external and internal matters mostly concerning funds and how they are used to be proper and also lawful. A company of any size will also have an outside accounting firm annually examine the books, and policies and procedures of the organization. The three mentioned organizations provide senior management with information concerning all of the business activities mentioned in the preceding paragraph.

Without the information these organizations provide, top management cannot be sure that all of the company's policies and procedures are in compliance with both internal and external laws and regulations.

The advantages are clear that all three types of "controls" two being internal, allow top management to be confident about its internal and external obligations.

Some more sophisticated organizations apply a fourth method of control. Usually a department often called "internal staffing" or by another name that many companies consider vital.

Top and middle management become aware of any internal financial or external governmental problems from the accounting and auditing departments. However, the so-called "internal staffing" department does not rely on what a company can afford in terms of personnel based on profits or losses. The "internal affairs" or "internal staffing" insure that there is the correct amount of employees, at any given internal level within the company. They measure how many employees are required to have the company's profits maximized and losses limited. For example, a commercial bank in the USA may engage in in the trading of currencies or debt instruments as part of their business needs. The internal affairs department may determine that based on the bank's trading activities, more traders at a particular level are needed. They would perhaps measure trade volume with pre-set trading personnel models in order to make sure there were enough traders to perform proper trading. Of course, the reverse may be true as well. The internal affairs department may come to the conclusion that the bank has too many traders.

This type of internal control does not depend on the auditing or accounting departments. Nor information from outside accounting firms.