3 non-obvious benefits of employing internal auditors

The days of generalising the role of auditors, internal controllers and compliance departments and reducing their responsibilities to a single common denominator are gradually coming to an end. More and more organisations are recognising that an internal auditor does not simply compare actual conditions with expected conditions and, as they begin to understand the true objectives of internal audit, they leverage auditors’ expertise and knowledge to improve the operation and structure of their organisations.

However, many of the benefits arising from the work performed by internal auditors still go unnoticed in everyday business practice, and this is hardly surprising – they cannot be directly reflected in reports or captured in financial results. At the same time, the role of internal audit continues to evolve and is no longer limited to identifying irregularities or providing recommendations.

It is therefore worth highlighting three less obvious benefits that internal audit brings to an organisation.

Benefit 1: identifying inefficient processes and approaches

Regardless of whether an organisation has its own internal audit team or relies on outsourced internal audit services, discussions conducted as part of audit procedures primarily enable the identification of minor inefficiencies, such as duplicated activities and procedures. It is often the case that tasks performed regularly and automatically no longer fulfil their original purpose – or have become outdated as the organisation has evolved and grown – yet they remain in force and continue to be followed without reflection (although employees’ adherence to procedures is not only unobjectionable but indeed desirable). 

If such inconveniences or inefficiencies are minor, they may individually go unnoticed, remain unreported to management or fail to justify corrective action. However, owing to their unique position within the organisation, an internal auditor has access to a broader view of all processes across the entity. This enables them to combine numerous details into a larger picture and identify harmful patterns of behaviour, as well as the cumulative impact of many seemingly insignificant practices on the organisation as a whole. Notably, an internal auditor’s recommendation is often not aimed directly at cost reduction but instead allows organisations to eliminate employee time wastage.

Examples of procedural inefficiencies which may go unnoticed or be considered insignificant when viewed on a small scale include:

• duplication of work – preparing reports with overlapping scopes and performing the same or similar activities or controls by different employees, 
• excessive reporting – preparing reports, summaries and documentation that have no defined purpose or recipient and are not used in any process, 
• manual processes – relying on outdated or inadequate tools, failing to take advantage of available automation opportunities and maintaining an excessive attachment to paper documentation that hinders the flow of information.

Benefit 2: improving the effectiveness of cross-departmental cooperation

Operating outside the closed structures of specific departments, internal auditors have a unique opportunity not only to observe the interdependencies between individual processes but also to gain a comprehensive view of all activities undertaken within an organisation. They can identify the points at which processes converge, transition into other processes or intersect at common touchpoints.

As a result, auditors are able to identify situations in which misunderstandings may arise, as well as circumstances in which employees’ responsibilities may conflict or even become mutually exclusive, at least from the employees’ perspective.

Example of a conflict between two departments involved in the same process

The responsibility of sales personnel is to sign a contract and commence cooperation with a new customer who has expressed interest in an offer as quickly as possible. The responsibility of the legal department, on the other hand, is to thoroughly review the contract before it is submitted for signature and to confirm the justification for each amendment introduced. Friction in this area is therefore entirely natural – the sales representative’s role requires the swift processing of a new contract, whereas the legal department needs sufficient time to perform its duties diligently. At the same time, reviewing new contracts may not be a priority for the legal department.

While awareness of the existence of misunderstandings and conflicts between departments due to their seemingly contradictory interests is generally widespread – and indeed expected and regarded in business practice as unavoidable – an auditor is able to identify the precise points at which tensions arise and recommend specific solutions or discuss appropriate remedies that reconcile differing expectations, clarify mutual misunderstandings and eliminate process bottlenecks.

An auditor can therefore become a catalyst for necessary change and, by participating in the process itself, act as an independent mediator between the parties involved, ensuring that the solutions developed are satisfactory and effective from every perspective.

Benefit 3: providing better access to past experience and organisational knowledge

Internal audit also helps accumulate and consolidate knowledge relating to previous errors, incidents and the improvements implemented as a result.

Reports prepared following audit engagements constitute an extensive repository of knowledge and historical experience. This is particularly important because staff turnover and departmental reorganisations are unavoidable and so common that it is easy to overlook the fact that, when employees leave, unique knowledge may be lost regarding the reasons behind past decisions, the methods used to avoid previous problems and the solutions that were tested but ultimately proved ineffective.

To avoid repeating mistakes from the past, organisations should seek the support of internal auditors, who preserve information about previously identified issues and historical incidents, collect data on implemented corrective actions and maintain documentation relating to the monitoring of implemented solutions.

Example

Several years ago, an organisation considered introducing automation in the form of OCR software intended to streamline the work of the accounting department. To this end, the organisation engaged a software provider and allowed accounting personnel to test the selected solution for one month. However, employees in the accounting department did not take advantage of this opportunity and did not begin working with the new tool. As a result, the organisation abandoned the software implementation and also discontinued other initiatives aimed at automating manual accounting processes and digitising documentation. During subsequent audit procedures, internal auditors identified the reasons for this situation. It transpired that the testing period coincided with the closing of the accounting books and the statutory audit of the financial statements by the independent statutory auditor. Consequently, the accounting team did not have sufficient time to test new tools, a fact of which the individuals responsible for liaising with the software provider were unaware. These findings provide valuable guidance both for future implementation projects and for future cooperation with the accounting department. Any subsequent attempt to improve accounting processes can therefore benefit from these earlier experiences.

When reorganising internal procedures, it is worth leveraging the full potential of internal audit

Internal audit is not merely a compliance function. Although assurance and advisory activities remain its foundation, the actual added value generated by the internal audit function is significantly broader. It is therefore no surprise that organisations increasingly view internal audit as a source of inspiration for change and as genuine support in achieving organisational objectives.

Accordingly, all organisations seeking to unlock their full potential – identify inefficient processes, eliminate waste, streamline cross-departmental collaboration and preserve valuable knowledge about past experiences, decisions and implemented improvements – are encouraged to contact RSM Poland’s internal auditors. Out team will help reveal issues that have previously gone unnoticed and transform everyday observations into tangible improvements that facilitate the achievement of specific business objectives.