Two important questions asked by management in today’s economic climate are, “How do we know if our Internal Audit (IA) department is functioning effectively?  Is it providing the most possible value?”

A good place to start is a review of the Internal Audit department infrastructure.  The infrastructure includes the department’s roles and responsibilities and its authority.  IA should be independent from management with direct access to the audit committee.  Typically, the Chief Audit Executive (CAE) reports administratively to the CFO and formally to the audit committee chairman.   The IA charter provides formal clarity regarding the department’s authority to access company records, execute the annual audit plan, and the department’s vision.  The charter should be reviewed and approved by the audit committee and the CFO at least annually.

Other key questions to evaluate IA include:

• Are audits conducted in compliance with the International Standards for the Professional Practice of Internal Audit?
• Does IA have a quality assurance program and are the results reported?
• Has an external quality assessment been performed in the past five years?
• Is there an audit client feedback process?
• Does IA have the tools and resources it needs to complete the annual audit plan?
• Has the IA team acquired professional designations to demonstrate competency?

If the answer is yes to all of the questions, chances are the IA department is on the path to create value.  Nos identify areas for potential improvement that could lead to positive change for both the department and the organization.