Internal audit has an important role in helping an organization achieve its objectives. Organizations with an effective internal audit activity are more successful at identifying business risks and process and system inefficiencies, taking appropriate corrective action, and supporting continuous improvement. To support Internal Audit departments in increasing their efficiency and effectiveness, the IIA issued the practice guide on “Measuring Internal Audit Effectiveness and Efficiency”. This article provides the highlights from this guide.
Internal Audit Performance Management
There are four key areas of the performance management process:
- Define internal audit effectiveness
- Identify key internal and external stakeholders
- Develop measurements of internal audit effectiveness
- Monitor and report results
Organizations should determine what constitutes a successful internal audit activity based on the organization’s strategic plans, audit committee charter and internal audit charter, and expected internal audit deliverables. Based on these items, internal audit should develop an initial definition of internal audit effectiveness and efficiency to send to key stakeholders for agreement.
The internal audit activity should identify all relevant stakeholders (internal and external) and their respective expectations of the internal audit function and solicit their feedback.
Organizations should develop performance measures to determine if the internal audit activity is meeting its goals and objectives. Organizations should consider the IIA’s International Professional Practices Framework (IPPF), the internal audit charter and mission, applicable laws and regulations, and audit strategies and plans when developing performance measures. In addition, performance measures should be based on stakeholders’ needs and the organization environment. Performance measures can be quantitative or qualitative.
Internal audit’s effectiveness and efficiency should be periodically reported to stakeholders. In addition, internal audit may want to consider benchmarking its performance metrics and criteria with peer organizations to help ensure appropriate criteria are in place.
Internal audit can increase its effectiveness and efficiency by developing appropriate performance metrics and monitoring against these metrics. McKonly & Asbury is available for consultation on this or other Internal Audit matters. Please do not hesitate to contact, Elaine Nissley, MBA, CISA, PMP, CRISC, Principal, in charge of the Risk Management Services group via our contact page.
The Practice Guide – Measuring Internal Audit Effectiveness and Efficiency is located here.