Internal auditing as a function has an unenviable reputation. Internal auditors are considered little better than corporate policemen, an opinion that is strengthened by the fact that it is given little importance within an organisation. Internal audit teams have no defined roles and are usually built from the lower levels of available human resources in a firm.
This alarming situation is not unique to India, but it could be remedied by adopting some of the measures that developed countries have taken to tackle a similar situation. To understand this better, let us look at the role of the corporate management, the performance of internal audit staff and how best the results of the internal audit exercise can be dealt with. Corporate management should ideally use the internal audit function as an extended set of eyes and ears that monitor the functioning of the organisation.
The exercise should act to ensure that transactions and processes are not only aligned with the strategic initiatives but aimed towards achieving overall organisational goals. Unfortunately, top management of companies treat internal auditing as a necessary evil, compelled by law. Such a function is utilised for mundane work, mainly transaction checking with no linkage to business risks which obviously does not add any significant value.
In contrast, developed countries have made internal auditing a primary tool of corporate governance. This has single-handedly ensured an extensive transition in the role of internal audit from the narrow transaction verification exercise to an all encompassing one that ensures a wide array of matters such as compliance to laws and regulations, managing business risks and checking the integrity of reports and communications. In effect, internal auditors have managed to quickly move away from the role of corporate policemen to that of business advisors. This is a move that can effectively take place in India, if top managements of companies change their mindset radically.
On the staff side, a balanced skill set and a positive attitude and approach towards work are two important factors. It is clear that the current popular trend of using the internal auditing department as a parking space for the less qualified staff has to be done away with.
To bring about qualitative change in the staff would indeed be challenging. The new teams must be multi-disciplinary and comprise an appropriate cross section of experts and professionals preferably from functional areas. It is necessary to initiate such new teams to the modern philosophy and methodologies of internal auditing, which clearly result in proactive risk management and measurable value addition.
A change in the mindset of internal audit teams is also necessary. They would have to shed their attitude of policing and adopt one of being partners working towards positive contribution. To gain acceptance, they must strive to ensure that they are perceived as working on the same side of the table as the operational staff.
Recommendations from the re-engineered internal audit function must be given greater cognisance. To enhance this, not only should the mission and reporting lines of internal audit be redefined but, more importantly, an independent and well-represented audit committee should also be set up. It would also help if the importance of the internal audit function is clearly understood, demonstrated and respected within the corporate hierarchy
