Internal Audit: Your Secret Weapon for Enhanced Governance and Strategic Advantage

In the complex and ever-changing world of business, private company boards of directors face a multitude of challenges, from navigating regulatory landscapes to mitigating emerging risks. In this dynamic environment, internal audit emerges as a critical asset, providing invaluable insights and guidance to enhance governance, strengthen operations, and achieve strategic objectives.

Dispelling Misconceptions and Embracing the Value Proposition

Common misconceptions often cloud the true value of internal audit. Some view it as a mere box-checking exercise, while others perceive it as an adversarial function that hinders business operations. However, these misconceptions fail to capture the essence of modern internal audit, which is a proactive, risk-based approach that aligns with the organization's strategic goals.

"Internal audit isn’t just about checking boxes and ensuring compliance," said Mike Levy, CEO of Cherry Hill Advisory, a leading risk advisory services firm. "It's about providing valuable insights and recommendations that can help organizations improve their governance, operations, and risk management."

Internal audit offers a comprehensive value proposition for private companies, encompassing four key pillars:

Enhancing Corporate Governance and Risk Management: Internal audit plays a pivotal role in strengthening corporate governance practices, ensuring compliance with regulatory requirements, and effectively managing risks that could impede organizational success.

Strengthening Operational Efficiency and Effectiveness: Internal audit evaluates the efficiency and effectiveness of business operations, identifying areas for improvement and potential cost savings.

Protecting Assets and Ensuring Compliance:Internal audit safeguards assets from fraud, waste, and misuse. It also ensures adherence to internal policies, external regulations, and contractual obligations.

Promoting Transparency and Accountability: Internal audit promotes transparency by providing independent and objective assessments of the organization's operations and risk management practices. It fosters accountability by identifying and addressing control weaknesses and ensuring that ethical standards are upheld.

Internal Audit: The Eyes and Ears of the Board

Internal audit serves as the eyes and ears of the board, providing objective assurance, independent of management, on the organization's risk management practices, internal controls, and governance structures. This assurance enables boards to make informed decisions with confidence, knowing that they have a clear understanding of the organization's strengths and weaknesses.

"Internal auditors are trusted advisors who can provide you with an unbiased perspective on your organization's risks and controls," said Levy. "This information is invaluable for making informed decisions about how to manage your business."

Internal audit's role goes beyond mere assurance; it actively uncovers hidden risks and opportunities that may have otherwise gone unnoticed. It identifies control weaknesses and inefficiencies that hinder operational performance and increase the likelihood of errors or fraud.

Unlocking Internal Audit's Potential as a Strategic Asset

To fully realize the potential of internal audit as a strategic asset, boards should integrate it into the strategic planning process. By aligning internal audit activities with key business objectives, boards can leverage internal audit's expertise to identify potential roadblocks, assess emerging risks, and evaluate the effectiveness of strategic initiatives.

"Internal audit can be a valuable partner in helping you achieve your strategic goals," said Levy. "By working with internal audit, you can identify and mitigate risks, improve your processes, and make better decisions about how to allocate resources."

>Internal audit can serve as a catalyst for continuous improvement, fostering a culture of self-assessment and proactive risk mitigation. By embracing internal audit's insights, boards can drive operational excellence, enhance decision-making, and achieve sustainable growth.

Expanding Internal Audit's Scope: Advisory Services

Internal audit's role extends beyond traditional assurance services. In addition to providing independent assessments, internal audit can offer valuable insights and recommendations to enhance business processes, improve risk management practices, and address emerging challenges.

"Internal audit can play a valuable role in helping organizations implement new technologies, improve their cybersecurity posture, and comply with evolving regulations," said Levy. "By expanding its scope, internal audit can add even more value to the organization."

Internal audit's expertise can be leveraged to support a wide range of initiatives, such as:

• Evaluating the effectiveness of new technologies or processes
• Assessing the adequacy of cybersecurity controls
• Reviewing the organization's environmental, social, and governance (ESG) practices
• Providing guidance on regulatory compliance and emerging risks

By expanding its scope to include advisory services, internal audit can significantly enhance its value proposition and contribute to the organization's overall success.

Upholding the Highest Ethical Standards: The Importance of Objectivity

The effectiveness of internal audit hinges on its ability to maintain impartiality and independence. Internal auditors must avoid conflicts of interest and uphold the highest ethical standards to ensure the objectivity and credibility of their work.

"Internal auditors must be able to stand up for what is right, even when it is difficult," said Levy. "They must be able to provide independent and objective assessments, even if it means challenging the status-quo.”

Internal audit has transformed into a strategic partner for boards of directors, providing invaluable insights and guidance to enhance governance, strengthen operations, and achieve strategic objectives. By dispelling misconceptions, embracing its value proposition, and empowering boards with its insights, internal audit can serve as a powerful secret weapon for sustainable growth and success.

By properly resourcing and utilizing internal audit, boards can reap a number of benefits, including:

• Improved corporate governance and risk management.
• Strengthened operational efficiency and effectiveness.
• Increased protection of assets and compliance with laws and regulations.
• Greater transparency and accountability.

In short, internal audit is a valuable asset that can help organizations achieve their goals. Boards that properly resource and utilize internal audit are more likely to enjoy good governance, strong risk management, and sustainable growth.

If you are a board member, I encourage you to take a closer look at your internal audit function. Make sure that it is properly resourced and utilized, and that you are getting the most out of its insights. Internal audit can be a powerful tool for success, but only if it is given the support it needs to be effective.

ABOUT MIKE LEVY

Mike Levy is the CEO & Managing Principal at Cherry Hill Advisory, a risk advisory and CFO services firm, and Chair of the North American Board of Directors of The Institute of Internal Auditors (IIA). He is the recipient of The IIA’s prestigious John B. Thurston award and co-author of Sawyer’s Internal Auditing textbook.

Mike has extensive experience in developing risk-based audit programs and accounting policies and procedures, including process improvement, enterprise risk assessments, Sarbanes-Oxley compliance, corporate reporting, acquisition due diligence, and the development and execution of business and technology audits.

Connect with Mike on LinkedIn at: Mike Levy | LinkedIn

Disclaimer: The views and opinions expressed in this blog are solely those of the authors providing them and do not necessarily reflect the views or positions of the Private Directors Association, its members, affiliates, or employees.