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When Should Internal Audits Be Done for Your Business?

Most business owners cringe when they hear the word “audit” because this word is associated with stress, the IRS, and frustrating paperwork. But you shouldn’t be scared of auditing. In fact, internal audits might be the best way that you can improve your business and maximize your results going forward. If you don’t have a system in place for internal audits, then it is time to talk to an outsourced accounting team to learn more about the options that are available.

What are Internal Audits?

An internal audit is a process of assigning an employee or accounting provider to provide an objective and independent evaluation of your business finances. This process helps you identify any areas that need to be improved so that you can avoid big problems in the future.

Internal auditing is a proactive way to care for the needs of your company. In the same way that you take your car in for regular oil changes and tune-ups, you also need to be proactive with preventive maintenance for your company. A little bit of work right now ensures that systems are working and you are staying on the right track. At the same time, you can identify areas of improvement to reach higher levels of success in the future.

Auditing is the answer so that you can reflect on the progress that has been made as well as the goals that need to be set in the future.

Responsibilities of Internal Auditors

What are the responsibilities carried by internal auditors? You can identify these responsibilities and assign them to an in-house employee. But many businesses find benefit in hiring a contractor or outsourced accounting team to ensure that it is a third-party, objective evaluation.

These routine audits are important to ensure that you are maintaining your competitive edge in the industry. Auditors help by:

  • Assessing, analyzing, and monitoring the controls and risks of the company
  • Reviewing your compliance with both state and federal laws
  • Identifying errors or opportunities for improvement
  • Providing recommendations to streamline systems and optimize business practices

The goal is to gather information on the operations of the business. Then, this information is used to show the areas that are going well and identify aspects that are in need of improvement.

It is important that the auditor is objective. When an auditor has a personal connection to the company, then the results can be skewed. For example, as the business owner, you may unintentionally place more focus or attention on things that are at the top of your mind, instead of looking at other aspects of the business that have been sitting on the back burner this year. Getting a fresh perspective is essential so that you can see your business financial situation with fresh eyes.

The Difference Between External Audits and Internal Audits

When you implement internal audits, you have the flexibility to choose the contractor that completes the work and when the audits are performed. This flexibility is nice because you can work around the busy season for your company. The goal is to improve company practices and optimize systems for further growth.

On the other hand, external audits might be done to verify financial reports for shareholders or the IRS. The owed responsibility goes to the entity that initiates the audit, such as the IRS or shareholders. Reporting to different people affects the way the recommendations are presented.

Why You Need to Schedule Internal Audits

Even though it takes a little work and effort, scheduling internal audits might be the best thing you can do to boost your company growth. Here are some of the benefits that you can expect from auditing services:

  • Top of Game: Since full transparency is needed for an audit, this process keeps management and employees at the top of their game. When people know that the work and progress will be tracked, then productivity goes up as everyone strives to meet expectations.
  • Reduce the Risk of Fraud: Regardless of your industry, it is necessary to be proactive to protect your company against the risk of fraud. The auditor will be able to identify any errors or issues that have already happened. At the same time, weak points in the system can be located to reduce the chances of fraud in the future. While you want to trust your employees and customers, it is important that protections are put in place to minimize the opportunities for theft or scams. Not only does auditing help to protect against dishonest activities of employees and customers, but you can also reduce the risk of cybersecurity concerns.
  • Measure Progress: It is easy to assume that your business is thriving when you don’t have a clear picture of the progress that is being made. When you are making big decisions about hiring, business development, and more, it is important that transparency is available to support the decisions that are addressed.
  • Maintaining Compliance: If you are in a business that is governed by state or federal compliance laws, then it is important to ensure that you are implementing all of the necessary activities to maintain compliance. For example, healthcare businesses need to audit the way data is stored and recorded to ensure that HIPPA compliance is respected. Most companies have compliance requirements that need to be met for payment processing and other aspects of running the business.

What to Expect During the Audit

Now that you can see the benefits of having an internal audit, it is time to identify the right company to help with these efforts. You need to know what to expect during this time so that you aren’t caught off-guard by the activities that are happening.

The auditor will come in and request access to documents, financial reports, computer systems and more. They will use this information to analyze the way the company’s performance matches objectives. At the same time, the observation will determine the effectiveness of different strategies that are implemented.

This work can take a few days or a few months, depending on the size of the company. If you have a small start-up or home-based business, then it won’t take long to review all of the financial details and reports.

When Should You Schedule Internal Audits?

You can choose the timeline when internal audits should be scheduled. Some business owners choose to implement a full auditing practice, while others bring in an auditor for a specific focus within the company. For example, you might audit the bookkeeping records to ensure that everything is accurate for tax filings.

Here are some of the common times when internal audits are implemented:

  • Before an Investment or Loan: If you are trying to bring in investors or you need a business loan, then you need to be sure that your financial information is ready for the scrutiny that will occur. It can be embarrassing to have inaccurate information presented to the investors! Instead, complete an audit to ensure that your financial statements are accurate.
  • Mistakes are Identified: Have you recently noticed a mistake in your books? If an error is identified, then it could be a red flag that other issues need to be corrected as well. It is common for mistakes to happen, which is why internal auditing is essential to keep everything on track. The auditor can identify the errors and provide recommendations to fix the discrepancy. Even tiny discrepancies can add up over time, costing you more money in the future.
  • Cash Flow Problems are Happening: Are you having a hard time identifying why you are experiencing cash flow problems in your business? If you are running into issues where sales are made, but you don’t have enough to pay the bills, then there could be internal inefficiencies that need to be corrected. For example, you might be overlooking the monthly expenses and paying too much in overhead costs. An audit can help you find ways to cut down the expenses so that you can maximize your profitability.
  • Consistent Schedule: You don’t need to have a specific reason to implement auditing practices. Instead, you might set a schedule so that you can be proactive with your business goals. Problems with the business could indicate the need for an audit. On the other hand, you can implement auditing practices before the problems arise. Checking the financial health of your company is as important as regular visits to the dentist or doctor to assess your physical health.

What do you need to know about internal audits? If you have questions, then contact Easier Accounting. We will gladly answer your questions and help you identify the right outsourced accounting services to support your business goals. Our team specializes in small business bookkeeping and accounting. We know the best practices to support your financial reporting and other processes that need to be implemented for long-term business success. When you are ready to learn more, you are invited to contact us to discuss your options. We can be reached at (888) 620-0770