Types of Internal Audits
Compliance Audit
A company may be required to adhere to local laws, compliance needs, government regulations, external policies, or other restrictions. To demonstrate compliance with these rules, a company may task an internal audit committee to review, compile appropriate information, and provide an overall opinion on the status of the compliance requirement.
Internal Financial Audit
Public companies are required to perform certain levels of external financial auditing where a completely independent third party provides an opinion on the company’s financial records. Companies may want to dive further into audit findings or perform an internal financial audit in preparation for an external audit. Many of the tests between an internal or external auditor may be similar; the nature of independence separates the two types of audits for financial audits.
Environmental Audit
As companies become continually more environmentally conscious, some take the steps of reviewing the business’ impact on the planet. This results in an internal audit covering how a company safely sources raw materials, minimizes greenhouse gases during production, utilizes Eco-friendly distribution methods, and reduces energy consumption. Companies leveraging triple bottom line reporting may perform internal environmental audits as part of annual reporting.
Technology/IT Audit
An IT audit may have different objectives. The internal audit may be the result of an external lawsuit, a company complaint, or a target to become more efficient. An internal audit focused on technology reviews the controls, hardware, software, security, documentation, and backup/recovery of systems. The goal is likely to assess general IT accuracy and processing capabilities.
Performance Audit
An internal audit focused on performance pays less attention to the processes and more on the final result. The company will have likely have set performance objectives or metrics that may be tied to performance bonuses or other incentives. As a result, an internal auditor assesses the outcome of an objective that may not be easily quantifiable.
For example, a company may wish to have expanded its use of diverse suppliers; the internal auditor, independent of any purchasing process, will be tasked with analyzing how the company’s spending patterns have changed since this goal was set.
Operational Audit
An operational audit is most likely to occur when key personnel leaves or when new management takes over an entity. The company may want to assess how things are done and whether resources are being used more efficiently. During an operational internal audit, the auditor will review whether current staff and processes fulfill the mission statement, value, and objectives of a company.
Construction Audit
Development, operating, real estate, or construction companies may perform construction audits to ensure not only appropriate physical development of a building but appropriate project billing along the life of the project. This mostly includes adherence to contract terms with the general contractor, sub-contractors, or standalone vendors as necessary.
This may also include ensuring the company has remit the appropriate payments, collected the appropriate payments, and internal project reports regarding project completion are correct.
Special Investigations
Many of the audits above may be recurring and performed each year. In some cases, it might make sense for an internal audit committee to evaluate a special circumstance that will occur only once. This may entail gathering a report on the efficiency on a recent merger, the hiring of a key employee, or a complaint from staff. When selecting the individuals for the special investigation audit, a company must be especially mindful to select members with appropriate expertise and independence.