Better internal audit leads to better controls; Is your internal audit activity doing what you and your board of directors want? If not, what steps are you taking to change it?

• Author: Hirth, Jr, Robert B.
• Position: INTERNAL CONTROLS

Many think of internal controls as the unique combination of people, processes and technologies created in organizations. However, to ensure strong controls are established within organizations, it is important to consider questions such as:

* What activities further improve control in our organization today and in the future?

* How can we enable events that will improve our controls over time?

* How do we build and maintain a mindset and culture that complements, as well supports, our firm's controls?

* How can we intersperse managers throughout the organization who understand, appreciate and help further a well-controlled environment?

An effective internal audit activity within an organization will help answer these questions and achieve the desired goals around them.

Indeed, companies with the best internal audit functions--those that employ leading practices and are in sync with the expectations of, and strategic objectives defined by, management and boards of directors--generally have better controls.

This does not mean that simply having an internal audit activity ensures good controls. Rather, a high-performing internal audit activity creates a higher probability of better controls. Conversely, an internal audit function that per- forms poorly does not and is unlikely to foster the development and maintenance of strong internal controls.

While internal control is defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), internal auditing is defined by The Institute of Internal Auditors (IIA) as an:

"independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes."

Companies that create an internal audit function that delivers on this definition will create a highly valuable asset. In fact, when combined with the activities of better internal audit functions described below, the result is a key competitive advantage: a high-performing internal audit function that helps to properly validate and continuously improve controls and serves as a vital source of management talent that delivers future leaders for the organization.

The attributes of what exactly defines a "better" internal audit function are discussed below.

Better People

This is where an effective internal audit function begins and often ends. A good team...