By Jackie Stapleton

The Power of Internal Audits

In the dynamic world of business, staying on top of your game is crucial. That’s why conducting internal audits is a game-changer for your business. These audits provide a comprehensive understanding of how well your procedures are being followed, uncovering areas for improvement that could transform your operations.

Picture this: Your dedicated workforce, unknowingly altering processes as they go about their daily tasks. It happens more often than you think. But don’t stress! By conducting regular internal audits, you’ll proactively identify any changes and have the power to update your processes, systems, and overall workflow accordingly.

Why is this important? By pinpointing nonconformances and recognizing improvement opportunities, you demonstrate your commitment to continual growth and excellence. Without these audits, you might find yourself caught off guard by customer complaints and failing to meet their requirements—a reactive nightmare that no business owner wants to face.

No matter how big or small your business, internal audits are the key to continual improvement.

In fact, the smallest business I have worked with, which was the owner himself (and that was it), conducted internal audits. When I first branched off to work for myself in 2010, I worked with a one-man business in remote NSW. Jim had his own aerospace consultancy, and a requirement was to be certified to ISO 9001. The challenge when we got to the requirements of Internal Audits, was that these internal audits were to be impartial and objective. How were we going to do this when there was one person in the business and the location of the owner was remote?

We came up with a solution. This is what we did.

• Internal Audit procedure – documented that due to the remote nature of the location of the business, Jim was responsible for conducting the internal audits.
• Internal Audit training – Jim completed Internal Auditor training to demonstrate his qualifications in conducting the internal audits.
• Internal Audit programme – Jim created an annual internal audit programme based on risk and covering all activities of the business.
• Internal Audit findings – Jim conducted the internal audits as per the programme.

The ‘winning’ result of this process was that Jim was able to demonstrate his impartiality and objectivity as he actually identified nonconformances and improvement opportunities and recorded these in his Internal Audit Reports with the Corrective Actions also documented in the Register. I was still nervous as to what the Certification Body would consider in the Certification Audit. I felt we had covered ourselves well with the explanation of why, who and how the audits were conducted as well as the objective evidence in the results of the internal audits. I waited with bated breath for the certification audit to conclude and finally, I received a phone call from Jim to say that the system had passed!

In 2010, EY commissioned Forbes Insights to conduct a global survey about the evolving role of Internal Audit. In the survey, 96% of respondents indicate that their internal Audit function has an important role to play in their overall risk management efforts. And yet, 74% believe that there is room for improvement. Taking this into consideration, Internal Audits have the opportunity to move quickly in driving competitive value across all organizations.

Conducting an internal audit is like a professional athlete reviewing game footage to improve their performance. Just as a skilled athlete will study video recordings of their past games to identify areas for improvement, a person can conduct a self-assessment to evaluate their strengths and weaknesses and identify areas where they can grow and develop.

Like an athlete, a person may need to make adjustments to their strategy, hone their skills, or seek advice and coaching from others to reach their full potential. By taking the time to assess their performance and set goals for improvement, a person can become a more effective and successful player in their personal or professional life.

We can now understand that conducting internal audits and the resulting corrective actions involves going beyond temporary fixes and addressing the root cause to prevent future failures or issues within the organization’s processes or systems.

Association of Internal Audits with Business Focus and Growth

Level 1 Customer complaint responses – occupies the bottom focus on the scale, representing a mindset or approach that primarily responds to situations or challenges after they have already occurred. It is characterized by a tendency to address issues as they arise, without significant proactive planning or preventative measures. Reactive responses typically involve dealing with problems as they become apparent, employing corrective actions to mitigate their impact or resolve immediate issues. While reactive measures are sometimes necessary, relying solely on reactive approaches can limit opportunities for improvement, innovation, and long-term success. A reactive focus may result in addressing problems as they emerge rather than proactively working to prevent them, potentially leading to inefficiencies, delays, and missed opportunities for growth. This category refers to business areas that are experiencing a downturn or a decline in performance. They require strategic interventions to reverse the decline and regain stability. They may be facing challenges such as decreasing revenues, market share erosion, or outdated business models.

Level 2 Worker Operation – this focus point involves addressing immediate issues and finding solutions to resolve problems as they arise. Remediation focuses on reactive actions taken to mitigate the impact of nonconformances. While it is not as proactive as prevention, it emphasizes learning from reactive situations and implementing measures to prevent similar issues from occurring in the future. This level represents business areas that are undergoing changes or undergoing a shift in their trajectory. They may be transitioning from a decline to growth or from growth to decline. These areas require strategic adjustments and may have uncertain outcomes.

Level 3 Management spot checks – involves management identifying opportunities for efficiency, effectiveness, and productivity improvements. This focus point emphasizes reviewing and enhancing existing processes, systems, and practices to achieve better outcomes. It encourages the evaluation of current practices, the exploration of new methods, and the implementation of innovative approaches to optimize performance. However, it is being ‘enforced’ upon the workers as there is no involvement of other team members and workers feel obligated to take action otherwise, they might lose their job. Normally the business will be neither experiencing significant growth nor decline. They are holding steady and maintaining a consistent performance without major fluctuations. While they may not be growing rapidly, they are also not declining.

Level 4 Reactive internal audits – emphasizes being proactive rather than reactive by anticipating potential challenges and developing strategies to prevent or minimize their impact. This focus point involves having in place ‘some’ level of internal audits, however they are not risk-based so are still reactive or just conducted to tick off a few boxes on a checklist. This represents business areas that have significant potential for growth and development but may not be at their peak yet. They are showing positive signs and have the potential to generate higher returns in the future.

Level 5 Internal audit programme – a mindset dedicated to consistently advancing processes, practices, and outcomes. It emphasizes an unwavering commitment to ongoing learning, innovation, and refinement. Individuals and organizations that prioritize continual improvement embrace a growth-oriented perspective, actively seeking feedback, analyzing data, and implementing changes to optimize performance and achieve superior results. This focus fosters a culture of adaptability, agility, and relentless pursuit of excellence, driving continuous progress and development. This represents business areas that are experiencing significant expansion and positive development. They exhibit strong upward trends and have a high potential for generating increased profits, market share, and overall success.

Your Next Steps to Success

1. Develop an internal audit programme based on risk
2. Implement the conduct of internal audits as per the programme
3. Engage an Expert to support you through this process.