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Internal Audit Strategic Framework
The document provides an overview of the strategic framework and goals of an internal audit department. It outlines the department's mission to be a trusted advisor and problem solver while optimizing costs. The framework details short, medium, and long term goals including implementing efficient processes, advanced technologies, and becoming a market leader. It also provides examples of internal audit reporting, analysis of results, and auditor evaluations to measure performance.
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Internal Audit Strategic Framework
- 1. Internal Audit Department MissionStatement: To be the Assurance Provider, Problem Solver, Insight Generator and Trusted Advisor for the Company… Tagline: “Increase profitability at the same time optimising operational costs with precision reporting”
- 2. Internal Audit StrategicFramework Mission • Charter of the Internal Audit Entity • Setting up a comprehensive, low cost Internal Audit Methodology • Effective Internal Audit Process Flow • Streamlined Policy, SOP for efficient financial data capturing in the system and business operations. • Maintaining optimum and sustainable operational cost measures • Increase productivity • Check and balance Short Term • Direct Planning, organising and monitoring operational & financial audits • Review existing company assets and stock control • Ensure all inventory and stock management system are maintained accurately with agreed parameter & timely • Recommend methods to enhance and improve control procedures. • Documentation of results, evaluation, reviews, plan, resolution by Management on audit issues or findings. • Preparation of audit plans & schedule for audit and stock take for every Operation divisions • Obtaining documents and information from every operation divisions and to communicate on improving the productivity and internal control Medium Term • Setting up an effective and workable metric for Internal Auditing measurement • Self appraisal by Operation divisions and setting spot check schedules • Obtaining possible improvement on productivity and control system from operation divisions through feedback and “Suggestion Box” • To improve documentation and reporting based on international standard such as ISO 9000 - Quality management and ISO 31000 - Risk management • To propose an advance and high technology Internal Audit Management System Long Term • Implementation of sophisticated cost cutting tools & improvement on productivity management using latest technology with higher accuracy • Web-based Internal Audit Methodology (Paperless) • Mobile Apps for Internal Audit Reporting • Accurate Mobile Apps for Real Time Productivity view and supports Vision • Assist the Company to be the market leader • Assist the company to seek and assure investors for future Public listing in Stock Market • Creation of Value Management • Future Business Model (Consultation Services)
- 3. The Value Management TheCore Values People Progressive Relationship Workforce will be able to put forward skills professionally. Dedicated and effective workforce. Workforce will be highly motivated. Appeal and attraction to Gen Y to join and contribute. Multitasker and multi talents. Workforce will grow and be the future branch supervisor or manager. Research & Development Reliability Users will fully utilize and perform tasks efficiently with current systems. Flexibility Fast deployment Accurate and effective user control. Sustainability R&D initiatives will be able to sustain Organisation, business climate and progress with updates or additional features Process (Operations) Care & Support Priority to customer grievance. Time keeping on Actions and follow ups Accurate inventory and financial data input and output Cost Efficiency Efficient utility management Avoid mistakes and errors Avoid wastage Green Technology Profitable Volume Growth Achievable sales target Achievable operational cost cutting measures Purchase and Costing initiatives Market expansion
- 4. Strategic Framework Measurement StakeholderValue CustomerValue PeopleR&DProcess (Operations) Value Management Profitability & Productivity? Assets and Cost Control? Company Policy & Standard? Data Accuracy? Internal Audit Strategy The Measurements Progressive Relationship Reliability Flexibility Sustainability Care & Support Cost Efficiency Profitable Volume Growth • Strategic Risk • Compliance Risk • Operational Risk • Financial Risk • Reputational Risk
- 5. People Process (Operations) R&D Stakeholder Customer Attitude Knowledge Skill InternalAudit Happy & Satisfied Customer
- 6. Strategic Risk A possiblesource of loss that might arise from the pursuit of an unsuccessful business plan. For example, strategic risk might arise from making poor business decisions, from the substandard execution of decisions, from inadequate resource allocation, or from a failure to respond well to changes in the business environment. Compliance Risk Exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices. Operational Risk The prospect of loss resulting from inadequate or failed procedures, systems or policies. Financial Risk Possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations. When a company uses debt financing, its creditors are repaid before its shareholders if the company becomes insolvent. Reputational Risk Loss resulting from damages to a firm's reputation, in lost revenue; increased operating, capital or regulatory costs; or destruction of shareholder value, consequent to an adverse or potentially criminal event even if the company is not found guilty Risk Appetite Risk appetite can be defined as the amount and type of risk that an organisation is willing to take in order to meet their strategic objectives.
- 7. Key Benefits • Identifiesaction steps for branch management to drive revenue and reduce costs • Provides training for branch management and associates • Fosters a culture of accountability and integrity • Identifies leading practices and potential enhancements to branch policies / procedures and controls • Provides opportunities to solicit feedback from branch personnel • Identifies gaps in the brand consistency and service delivery across all branches • Measures operational performance and provides visibility into key performance indicators, which enables management to make informed business decisions. • Prevents potential legal fines or penalties by proactively identifying issues • Assists in the prevention and detection of internal and external theft Approach What will the Management gained? Level Cycle-based Routine audits give branches the impression they are always being monitored Beginner & Intermediate Easy to compare audit results across all branches over a set time period Audit results can be built into performance evaluations or bonuses for branch management Learn best practices from strong performing branch Risk-based Higher-risk branches are audited more often, enabling management to timely address issues impacting branch performance AdvancedCost effective since it requires less resources to meet the risk appetite Provides auditors the option of not utilizing the full audit program by only reviewing high risk areas, which may enable greater overall branch coverage
- 8. Internal Audit Start-upFramework Stakeholder Expectations Mission Statement Strategic Plan Audit Plan, Risk & Processes Establish Charter/Policy/SOP Launch Fieldwork soonest possible (Performance) Access Needed Skill sets Develop Infrastructure & Resources Establish Communication Protocol Measure Results Quality Assurance (Auditor Evaluation)
- 9. Stakeholder Expectations Understand stakeholder expectations Understand theindustry and the organization’s objectives Mission Statement Develop mission and set vision Internal Audit Strategic Framework Establish Charter/Policy/SOP Define the critical success factors (Metric) The Core Values The Value Management Strategic Plan Scope/Key Control Objective Risk Appetite Short Term Medium Term Long Term Develop Internal Audit Charter The Audit Plan Draft The Audit Plan Internal Audit Management System Financial Year Year End Closing Stocktake Peak Hours
- 10. Audit Plan, Risk& Processes Test 1st Branch Implementation Schedule & Notice Questionnaires/key objectives/checklist items and cross check system Test 2nd Branch Test 3rd Branch Corrective Action Exceptions Test 4th Branch Test 5th Branch Test 6th Branch Test 7th Branch Test 8th Branch Fieldwork Internal Audit Reporting Access Needed Skill sets Training & Development Final Report Follow up Best Practises Policy & SOP Review Develop Infrastructure & Resources Measure Result Metrics Analysis Action Plan Grading Corrective Action Risk Based IA Communication Protocol Audit Committee Deliveries Tel & Fax Intranet Apps Quality Assurance (IA Evaluation) IA Questionnaires Management Internal Audit External Audit
- 11. 25% People • Qualityof professional staff • Ability to address specialised and technical needs • Understanding of the business and the global business environment • Interaction and communication with line management executives • Development of management talent for the organisation 25% Internal Audit Process Effectiveness • Rapid and effective start-up • Effective and timely communications • Development and delivery of practical recommendations to improve • internal controls and corporate governance • Results of auditee satisfaction questionnaires 25% Risk Management • Timely and effective identification of key business risks • Percentage of audit activities and resources allocated to addressing key business risks • Adaptability and responsiveness to emerging risks • Understanding and fulfilment of the needs of: – The audit committee – Executive management – R&D to sustain Organisation, business climate and progress. 25% Value Added to the Business • Protection of shareholder value through an improved control environment • Enhanced shareholder value through: – Cost reductions – Reduced revenue leakage – Reduced working capital – Enhanced cash flow Internal Audit Balanced Scorecard
- 12. Sample Internal AuditReporting Internal Audit Report 2016 Branch: A Date: 15/9/2016 IA Team: Jeremy Value Management: People Progressive Relationship Management/Audit Committee No Checklist Item Findings/Issues Internal Audit Recommendation Risk Factor Category Feedback by Branch Head Grading Action Plan 1. Workforce will be able to put forward skills professionally Some staff not sure their job functions. Upon interview, they claimed the Manager have not brief them properly Branch staff should be re-brief and to list down their job functions and scope. Reputational Risk- customer might complain of poor service and will go for competitors The staff actually just started working. We will train him and list out the job functions and scope accordingly. Value Management: Process (Operations) Care & Support Management/Audit Committee No Checklist Item Findings/Issues Internal Audit Recommendation Risk Factor Category Feedback by Branch Head Grading Action Plan 1. Accurate inventory and financial data input and output Poor recording of stock. Item YH (Serial No. ZZ) was key in as Honda EX5 thus creating inaccurate Inventory recoding in the system. Refer Appendix 1 (Photo illustration) Inventory Clerk will need to clarify the mistake and to ensure such mistake will not occur in the future. Always double check the DO Operational Risk- Failure to provide accurate inventory report will jeopardise the Company Financial Policy The staff promised not to repeat the mistake. Nonconformity Need Improvement Internal Audit Recommendation Observation Show cause Effective Adequate Unsatisfactory Poor Nonconformity Need Improvement Internal Audit Recommendation Observation Show cause Effective Adequate Unsatisfactory Poor Comment: Comment:
- 13. Sample Analysis IResult Branch A Branch B Branch C Branch D Common Audit Findings • Lack of written procedures. • Inefficient and ineffective processes or procedures • Improper use of General Ledger accounts. • Insufficient documentation to support travel claims. • Petty-cash policies are not being adhered to. • Miscalculation of Goods and Services Tax (GST) receivable • Lack of Inventory Controls • Failure to Comply with Contracts or Agreements • Lack of Procedures to Mitigate Risk • Inadequate IT Physical Security • Non-compliance with Revenue Processing Policy • Failure to Secure Sensitive Data 5% 10% 10% 30% 45% Effective Adequate Unsatisfactory Poor Nonconformity 80% 10% 8%1%1% Effective Adequate Unsatisfactory Poor Nonconformity 1%1% 19% 19%60% Effective Adequate Unsatisfactory Poor Nonconformity 50% 40% 8%1%1% Effective Adequate Unsatisfactory Poor Nonconformity
- 14. Sample Analysis 2Result 80% 10% 8% 1%1% Effective Adequate Unsatisfactory Poor Nonconformity Branch B 20% 20% 30% 20% 10% People Effective Adequate Unsatisfactory Poor Nonconformity 67% 17% 13%1%2% Process (Operations) Effective Adequate Unsatisfactory Poor Nonconformity 40% 30% 20% 5%5% Research & Development Effective Adequate Unsatisfactory Poor Nonconformity
- 15. Sample Auditor EvaluationScore Excellent 90% Good 5% Poor 5% BRANCH A Excellent 95% Good 3% Poor 2% BRANCH B Excellent 70% Good 20% Poor 10% BRANCH C Excellent 45% Good 33% Poor 22% BRANCH E Excellent 60% Good 30% Poor 10% BRANCH D Excellent 33% Good 56% Poor 11% BRANCH F