Internal Audit - A Comprehensive Risk Management tool

Understanding Document

SGA

Strategic initiatives have significant impact on operational and tactical

decisions
Increasing Capital
investments

People

Effective
Project
Management

STRATEGY Impacts

Process

Technology
Global Funding

Internal Audit function therefore needs to clearly understand the

strategic plans of Management and plan assignments around three
broad dimensions - People, Process and Technology
2

Critical areas that need to be focused during such internal audits can be
categorized under these three spheres

People
Organization roles and
relationship
Change in job
descriptions
New KPIs and
performance
measurement systems

Process

Internal controls in a
fully automated
environment
Standard operating
procedures
Customer accounts
reconciliation status

Technology savviness

Inter-office transactions

Training on new software

Employee related
transactions like PF, ESI

Roles in ERP

Technology

IT Strategy vs. Business

growth
Data conversion
Mapping business
processes to IT
Marrying standard
operating procedures to
Oracle functionalities
IT Organization
IT Controls
authorization

Critical areas that need to be focused during such internal audits can be
categorized under these three spheres

Process
Control, valuation and
effective project
management relating to
Capital Work in Progress
Verification of capital
work in progress
Assistance in Royalty
and Technical Know-How
Payments
GOs verification, follow
up and analysis of
consequential effect on
operational transactions

Process

Treasury related
processes

Process

Taxation related
processes such as

Bank reconciliation

TDS

Deposit of
customer collection

Annual taxation

Inventory control
Processes relating to
advances control
account vs. subsidiary
ledgers
MIS - Reporting
mechanisms, data
integrity etc

Income exemption
Costing systems

Internal audit, thus can be positioned as a risk management tool to

support top and middle management in their pursuits

Management A
udit

l Audit
Traditiona
cused on
fo
it
d
u
a
l
a
n
Traditio
of recording
s
s
e
tn
c
e
rr
o
C
information

Internal au
dit assumes a
business con
sulting/ adviso
ry
function
Stretches
into the realm
of
management a
udit

s
Completenes
lated
Accounting re

controls

Critical Ris
k Mana

relating to
ts
c
e
p
s
a
ry
Proprieta
f authority
delegation o

gement Tool

As lower m
anagement jo
bs
have been red
undant and m
ore
rules-driven
, the portion o
f
management a
udit has
increased

n, business
o
ti
a
iz
r
te
u
p
Pre-com
a trail. This
d
in
h
e
b
ft
le
transactions
gers to track
a
n
a
m
s
s
e
in
enabled bus
lication
p
im
d
n
a
s
e
g
han
origination, c
easily

New dimensions add to the complexity of audit and skills required in

executing such assignments
Illustrative audit scope
Review of Corporate Governance Machinery
Review of Information Technology
areas

Review and redesign of Management

Info Systems

Human Resources optimization (Time

Motion Studies etc)

Tax management and consulting

Cost and Resource Optimization

Supply chain management

Review of Project Management

systems

Social responsibility audit

In order to ensure optimal delivery, the function needs to be resourced with multi-dimensional
personnel having exposure in areas such as accounting, business advisory, technology,
energy-saving, cost reduction etc
6

Best practices in Internal audit need to be implemented to harness

maximum from such assignments

Sync with the long term business strategy and objectives

Project management structure and approach

Project Sponsor (Members from Top Management)

Project Review layer (Partners of the Audit & Consulting firm and Top/Middle Management)

Project execution layer (Consultants + Employees from Metro Water)

Quality control layer (Audit & Consulting firm partner)

Determine scope along with Client team considering

Strategic intent and plans

Client needs and priorities

Findings of internal control diagnostics

Diagnostic phase carrying out internal control review and As-Is mapping

Continuous communication strategy

Project Team a mix of client and consultant members

Cost benefit analysis

Agreeing on KPI of exercise and regular monitoring of performance

Use of special resources

Management Graduates

Engineers

Information Systems specialists

This template throws light on the broad scope of an ideal Internal Audit
assignment

Internal control review for the following processes

Purchase to pay cycle
Order to receive cycle

Review of IT Systems/ Processes

Role conflicts in IT
MIS Functionality used vs. EXCEL reports
Review of IT Organization/ roles

Customer satisfaction processes

Purchase Transaction audit