Top 5 areas that internal auditors fail to adequately serve

It takes leadership to enhance and protect an organization’s values and visions. A professional chief auditor must have the courage and confidence to look atboth outwards and inwards of the organization. They should be ready to take initiatives and consider risks that have been given little attention in the past. And make changes.

Plans for internal audits often don’t take into account some of the most common risks associated with an organization like cybersecurity, governance, and sustainability. Most of the plans do not allocate even a single resource to certain key areas. 

5 risk areas internal auditors are overlooking 

The article provides information regarding the five most overlooked risk areas in auditing, and these areas need more attention than we ought to give them. If left untreated, these problem areas often transform into major disasters that resulted in huge losses.

Here are some of the takeaways regarding each risk area:

Organizational Culture

When things go wrong in an organization, the root cause is often a toxic organizational culture with bad communication. Most of the internal auditors prefer to stick with audit issues that are easily quantifiable and ignoring keep the company’s cultural issues. Risks related to organizational culture should never be overlooked. 

An unhealthy workplace culture enables a minor issue to grow into a major disaster if left unchecked. People in the corporate chain – from managers to stakeholders, use company information other than the financial reports to make strategic decisions. Due to miscommunication, the majority of the time, that information is inaccurate and misleading.

To avoid this, here is what an internal auditor can do:

·         Identify the organization’s communication channels and tools.
·         Determine the risk of inaccurate and false information.
·         Determine which information gets more attention to the company.

Environmental Risks

Audits should include a detailed report on environmental risks in association with the organization. These risks should be approached the same way as other risks are dealt with like fraud, IT, etc. These risks include the release of toxic material, contaminated food, dangerous workplace conditions, ergonomics that affect employee’s health and efficiency.

The majority of the companies have failed to include these risks in internal audit risk assessment. It is still an unfamiliar territory, but it will have a disastrous financial and reputational effect on an organization if left untouched. Here’s what internal auditors can do:

·         Get information on the full scope of EHS risks and their impact

·         Determine if the level of assurance is corresponding to the level of risks.

As internal auditors cannot be expected to have full knowledge about environmental specifics; thus, a more reliable approach is to get professional help from some of the best accounting firms in Dubai. These experts can help you with an internal and external audit on environmental risks and minimize future costs associated with them.

Digital Risks

In this revolutionary digital age, many companies have established digital strategies and have created teams to develop applications, websites, and other digital channels. However, the audit generally lags in understanding these technologies and digital methods. These digital networks raise several identities, privacy, and security risks. 

The percentage of Chief Audit Executives (CAE) who rated cybersecurity as a very high risk for their organizations increased from 60% in 2017 to a staggering 77% for 2020.

Internal auditors should be equipped to include these risks associated with digital programs in audit planning. In this fast-paced environment, the digital aspect poses cyber risks with additional third-party risks that usually go unaccounted for. Introduce new digital risk frameworks to clarify data flows and regulatory implications in managing external parties.

Interpersonal dynamics

Effectiveness of an internal auditor depends upon his ability to navigate personal interaction, pointing out potentially unsettling issues but still fostering trust, and not seem like a whistleblower. However, most of the time, there is limited interpersonal interaction between the audit and the organization.

The gap between the auditor and the rest of the organization is bad for business. The management may be less forthcoming with information and is less inclined towards implementing audit recommendations. This makes it harder for the auditor to carry out the internal audit and initiate a positive change in the company. Following things can be useful to get the job done:

·         Learn soft-skills.

·         Figure out ways to improve corporate culture.

Internal auditors who lack empathy and “soft-skills” often fail to conduct a transparent audit, and in worst cases, the management blames the auditor for their poor performance. Another approach to this is to hire services of best accounting firms in Dubai, offering trained professionals that can help with identifying problems in your corporate culture.

Data Analytics

The internal audit uses data analytics for direct testing of internal organizational control, for risk assessment and identifying potential errors in data files that are later communicated to the management for correction. Most auditors fail to embrace data analytics and use them in an organization’s structures and processes.

Data analytics is a game-changer for internal auditing. The data analytics can be used to achieve a competitive advantage, to manage operations, and to ensure strategic plans. One of the significantareas where it can be of enormous help is keeping watch for frauds (which have cost Dubai firms millions of dollars), by recognizing patterns to anticipate future risks and quick monitoring. Here are a few things that can be of help:

·         Determine all uses of data analytics.

·         Develop your data analytics program.

·         Document data analytic approach in internal audits.

Failure to provide a precise internal audit report

As discussed above, most internal auditors fail to address certain risk areas. This fails to provide an adequate audit report, which can lead to a significant negative impact. Fortunately, there are many best accounting firms in Dubai to help you avoid most internal audit “fails” by ensuring that the internal audit is adequately resourced, professionally staffed, and operates on the highest levels of quality and integrity.