How should Internal Auditors work with The Board of Directors?

If the Board does not see Internal Audits as crucial for the business, then either the Board is missing a trick, or Internal Audits aren’t doing their job.

This short article aims to help Board members understand how to get the most value from Internal Auditors, and equally, help Internal Auditors ensure they provide maximum value to the Board.

To understand the interaction between Internal Auditors and the Board of Directors, we must be clear about:

  • The Board’s roles, tasks, and approach
  • The value that Internal Audits should provide to the business

Board of Directors roles

Overall, two types of director are necessary for a balanced board: Executive directors, and Non-Executive Directors.

Executive Directors should have detailed knowledge of their company, and drive the company toward success. In contrast, Non-Executive Directors bring knowledge of the external environment in which the company operates, and a measure of prudence and control.

Board of Directors tasks

The core function of the Board is to review, decide and steer a company’s purpose, vision, mission, and values. From this, the Board must set the company strategy and structure to best achieve the company’s mission. This means identifying what to delegate to employees, and what to do themselves. The Board must be mindful at all times of the company’s responsibilities to stakeholders, which normally includes employees, customers, shareholders, and suppliers.

Board of Directors balanced approach

Perhaps the biggest challenge for the Board is to drive the business forward while keeping tight control of, and being answerable to, the company’s activities.

Directors should consider internal forces that include short- and long-term commercial ambition and employee demands, and external forces including the legal and competitive landscape, and public sentiment.

Internal Audit’s role

Internal Audit techniques focus on managing risks, improving productivity, and instilling confidence in the business. They should be the foundation of good corporate governance, not only to minimise risks such as fraud and sub-standard quality, but also to increase productivity, and to benefit all stakeholders.

Internal Audit process

The process is relatively straightforward but very granular and objective, which normally benefits from Internal Audit software. It involves:

  • Firstly, understanding how responsibility, work, and data flows in the business, and identifying risks of errors, mismanagement, or fraud. Auditors should be able to see how internal control mechanisms support compliance to the company’s mission.
  • Next the Auditors prepare a report to summarise their findings and present this to the Audit Committee which normally has at least one board member.
  • Lastly, the Audit Committee decides and implements improvements to the business.

What should Internal Audit deliver to the board?

Internal Audit, through the Audit Committee, should proactively guide the Board how to improve the business and manage risks. In other words, provide the Board with strategically valuable and actionable information.

This means not only revealing potential issues and threats, but digging into the root causes of these issues, providing a clear way to address these issues, and proposing internal controls to prevent the issues from affecting the business.

Summary

Internal Audits are crucial for the well-being and success of a business. They recommend ways for the company to improve output and quality, reduce risks, comply with regulations, be a good corporate citizen and innovate. However, the Board must understand, trust, and apply Internal Audit findings to improve the business.

If you found this article helpful, you might be interested in how Internal Audit Management platforms and Internal Audit tools can help your Internal Audit process here.