Who’s Your Internal Auditor?

This article is about risk management for a small-to-medium-sized business. The risks to be managed include inaccurate accounting reports, preventing leaked information about your customer lists, or thefts of the company’s cash, inventories, personal property, intellectual property, and proprietary information.

Big companies have internal audit departments to test their accounting and protect their valuable assets. They employ professional auditors whose job is not recording transactions in their accounting records. That’s the job of their accounting department. 

So who checks on the accountants at your company? And going a step further, who checks to see that all the other elements of your internal processes are being followed, protecting your assets as well as the integrity of your accounting records? This entire area is called Internal Control. It’s the foundation of the audits performed by independent CPA firms and the basis for assurance to owners and management (and insurance companies) that its asset protection policies are working. 

So, who’s your internal auditor?

If you say that work is the responsibility of your accounting department, that means two things to me:

• You believe that people can be thorough and objective in checking their own work, and
• You don’t think additional asset protection policies outside accounting need oversight.

Of course, it also could mean simply that you don’t feel your company can afford the “luxury” of having an employee whose sole responsibility is checking and reporting on the adequacy of your internal control procedures. And that would be understandable if there were no other option. 

But there is. It might sound contradictory, but you can outsource your internal auditing process.

Hopefully, your small or medium-sized business has an accounting department that does an excellent job of keeping the books and preparing financial reports for both your management and your board of directors.  Trust in your employees and a gut feeling that they are doing accurate work may not be enough, however. Support your confidence in the work of your accounting department by hiring an auditor who checks the accuracy of their work once a month and delivers a written report to the board with the results of that review. Extending that review into a broader area of company operations is often a good idea as well, such as spot checking inventory records against the products actually on the shelf. The cost is minimal but the comfort from a risk management standpoint is priceless, and at a fraction of the cost of hiring an in-house internal auditor. Internal auditing is both crucial and accessible to businesses of all sizes.