Thursday, August 9, 2012

Internal Audit Function Need & Internal Auditor Recruitment

Assessing the Need for Internal Audit Function

  • Effectiveness of internal controls also depends on effectiveness of internal audit function.
  • Scale, diversity and complexity of organizational operations should be considered. Larger and complex organizational operations are; more things can go wrong.
  • Number of employees in the organization should be considered. It can be taken as approximation for the size of the organization. Large number of employees leads to more diversity and complexity.
  • Cost/benefit analysis should be performed. Cost of running an internal audit function should not exceed benefits.
  • Organization structure gives rise to complexity. Matrix structure is more complex, then functional structure.
  • Age of the organization should be considered. Newer organizations likely to be in growth phase. Growing organization requires frequent change organizational structure due to frequent change in environment.
  • Change in circumstances leads to change in risks faced by the organization.
  • Increase in number of unexplained events such as losses, frauds and theft. It indicates weakness in internal control system.

External or Internal Recruitment of Internal Auditor

Appointment of internal auditor from external to the organization brings fresh pair of eyes to evaluate organizational activities and controls.

External recruit will be clearly Independent of organizational activities and employees. He/she has no relationships with existing employees. He/she will not be intimated of any senior manager due to habit of obeying orders from him/her.

Assessment made by the external auditor should be acceptable to every employee because of having no conflicts and relationships with employees.

Outside recruit may have experience from other organizations from which present organization can receive benefits.

In the case of growing organization, internal recruit may not have sufficient experience and knowledge. However, in well-established organizations internal recruit may prove more efficient. Thorough experience and knowledge of organizational culture and industry will enable internal recruit to settle in new role easily and quickly.

Internal recruit is more economical for organization because of saving in recruitment, induction and training costs.

Internal recruitment is less risky as information on morale of internal recruit is already known rather than external recruit due to lack of information on morale of external recruit.

Internal recruitment may increase morale and motivation of existing employees due to opportunity of promotion and growth available within the organization.