A version of this article was previously published in the June 2019 edition of the Western Bankers Association’s WesternBanker Magazine.
While financial institutions can significantly differ in size, location, and complexity, all financial institutions must comply with regulatory requirements, meet service demands, protect assets, and best utilize resources. As market competition and consolidation increase, financial institutions are increasingly leveraging internal audit functions to address these requirements.
With this shift, banks and credit unions expect more from their internal audit functions or are adding them for the first time. That means internal auditors must expand their purview from risk and internal controls to overall management and operational performance—delivering solutions by recommending policy changes and process improvements instead of merely providing findings.
Whether your organization relies solely on internal audit employees, supplements its internal team with specialized external expertise, or outsources its internal audit functions completely, the following three steps are essential to achieving a more holistic and impactful internal audit.
Think Beyond Controls
Internal controls play a critical role in protecting assets, safeguarding resources, and processing and reporting timely financial information. However, internal audit activities shouldn’t stop with internal controls and financial risks. They should also extend to assessing operational risk—such as analyzing people, processes, facilities, and systems—as well as evaluating performance.
By taking a more holistic approach to internal audit—one that includes internal controls, risk management, and performance in the evaluation—organizations can create a culture of safety, transparency, efficiency, and effectiveness.
A holistic approach considers all of the factors that impact an organization—not just internal controls and financial risk. Beyond the internal controls, it’s important to consider the experience and knowledge of the existing internal audit staff when it comes to addressing new situations, products, and services. Financial Institutions should also consider whether the existing systems and processes are able to effectively support the scalability of current as well as new products and services.
Provide Practical Solutions
One of the most common criticisms internal auditors receive is that they don’t provide detailed, tangible solutions for resolving findings after identifying them. For example, many auditors limit themselves to the following:
- Identifying the need for developing missing policies
- Updating outdated procedures
- Simplifying processes
- Increasing effectiveness
However, internal auditors are uniquely positioned to deliver solutions because they’re able to independently and objectively evaluate situations. They can then provide additional value by:
- Sharing industry expertise or best practices from other organizations
- Helping implement robust policies and procedures and streamlined processes
- Enhancing company performance through strong communication, collaboration, coordination, reporting, and decision-making
Collaboration and independence aren’t mutually exclusive. One of the greatest misconceptions about internal audits is that auditees can’t partner with their auditors to make improvements.
However, the opposite is true. Without collaboration, an organization’s ability to achieve improvements is inherently limited. Through collaboration, auditors can gain insight from auditees, verify facts, and test the practicality of recommendations.
Collaboration can include an auditor and a line of business working together to develop testing procedures that can be performed by the line of business. This can improve the effectiveness of the line of business and reduce the impact and findings of an audit. In addition, this collaboration can provide testing and documentation that the audit team can rely on, and therefore, reduce the time it takes to perform an audit—a benefit to both the auditee and the auditor.
As an auditor, thinking outside the box and working with your auditees provides a great deal of project value. As an auditee, seeking recommendations from your auditor and tapping their expertise can provide your organization with practical advice and a more beneficial audit.
Pull It All Together
By following the above approach during an internal audit, your financial institution can remain compliant with regulatory requirements, meet service demands, and optimize resources, while also increasing return on investment from internal audit activities and transforming audit findings into actionable opportunities for improvement.
We’re Here to Help
To learn more about how your financial institution can fully benefit from future internal audits, contact your Moss Adams professional.