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Internal Audit Department
Mission Statement:
To be the Assurance Provider, Problem Solver, Insight Generator and Trusted Advisor for the Company…
Tagline: “Increase profitability at the same time optimising operational costs with precision reporting”
Internal Audit Strategic Framework
Mission
• Charter of the
Internal Audit Entity
• Setting up a
comprehensive, low
cost Internal Audit
Methodology
• Effective Internal
Audit Process Flow
• Streamlined Policy,
SOP for efficient
financial data
capturing in the
system and business
operations.
• Maintaining
optimum and
sustainable
operational cost
measures
• Increase productivity
• Check and balance
Short Term
• Direct Planning, organising and
monitoring operational &
financial audits
• Review existing company assets
and stock control
• Ensure all inventory and stock
management system are
maintained accurately with
agreed parameter & timely
• Recommend methods to
enhance and improve control
procedures.
• Documentation of results,
evaluation, reviews, plan,
resolution by Management on
audit issues or findings.
• Preparation of audit plans &
schedule for audit and stock take
for every Operation divisions
• Obtaining documents and
information from every
operation divisions and to
communicate on improving the
productivity and internal control
Medium Term
• Setting up an effective and
workable metric for Internal
Auditing measurement
• Self appraisal by Operation
divisions and setting spot
check schedules
• Obtaining possible
improvement on
productivity and control
system from operation
divisions through feedback
and “Suggestion Box”
• To improve documentation
and reporting based on
international standard such
as ISO 9000 - Quality
management and ISO 31000
- Risk management
• To propose an advance and
high technology Internal
Audit Management System
Long Term
• Implementation of
sophisticated cost
cutting tools &
improvement on
productivity
management using
latest technology
with higher
accuracy
• Web-based Internal
Audit Methodology
(Paperless)
• Mobile Apps for
Internal Audit
Reporting
• Accurate Mobile
Apps for Real Time
Productivity view
and supports
Vision
• Assist the
Company to be the
market leader
• Assist the company
to seek and assure
investors for future
Public listing in
Stock Market
• Creation of Value
Management
• Future Business
Model
(Consultation
Services)
The Value Management
The Core Values
People
Progressive Relationship
 Workforce will be able to put
forward skills professionally.
 Dedicated and effective
workforce.
 Workforce will be highly
motivated.
 Appeal and attraction to Gen Y
to join and contribute.
 Multitasker and multi talents.
 Workforce will grow and be
the future branch supervisor
or manager.
Research & Development
Reliability
 Users will fully utilize
and perform tasks
efficiently with current
systems.
Flexibility
 Fast deployment
 Accurate and effective
user control.
Sustainability
 R&D initiatives will be
able to sustain
Organisation, business
climate and progress
with updates or
additional features
Process (Operations)
Care & Support
 Priority to customer grievance.
 Time keeping on Actions and
follow ups
 Accurate inventory and
financial data input and output
Cost Efficiency
 Efficient utility management
 Avoid mistakes and errors
 Avoid wastage
 Green Technology
Profitable Volume Growth
 Achievable sales target
 Achievable operational cost
cutting measures
 Purchase and Costing initiatives
 Market expansion
Strategic Framework Measurement
StakeholderValue
CustomerValue
People R&DProcess
(Operations)
Value Management
Profitability & Productivity?
Assets and Cost Control?
Company Policy & Standard?
Data Accuracy?
Internal Audit
Strategy
The Measurements
Progressive Relationship
Reliability
Flexibility
Sustainability
Care & Support
Cost Efficiency
Profitable Volume Growth
• Strategic Risk
• Compliance Risk
• Operational Risk
• Financial Risk
• Reputational Risk
People Process (Operations)
R&D
Stakeholder
Customer
Attitude
Knowledge
Skill
Internal Audit
Happy & Satisfied Customer
Strategic Risk
A possible source of loss that might arise from
the pursuit of an unsuccessful business plan. For
example, strategic risk might arise from making
poor business decisions, from the substandard
execution of decisions, from inadequate
resource allocation, or from a failure to respond
well to changes in the business environment.
Compliance Risk
Exposure to legal penalties, financial
forfeiture and material loss an
organization faces when it fails to act
in accordance with industry laws and
regulations, internal policies or
prescribed best practices.
Operational Risk
The prospect of loss
resulting from inadequate or
failed procedures, systems
or policies.
Financial Risk
Possibility that shareholders will lose money when they invest
in a company that has debt, if the company's cash flow proves
inadequate to meet its financial obligations. When a company
uses debt financing, its creditors are repaid before its
shareholders if the company becomes insolvent.
Reputational Risk
Loss resulting from damages to a firm's reputation, in lost
revenue; increased operating, capital or regulatory costs;
or destruction of shareholder value, consequent to an
adverse or potentially criminal event even if the company
is not found guilty
Risk Appetite
Risk appetite can be defined as the amount and type of risk that an organisation is willing to take in order to meet their
strategic objectives.
Key Benefits
• Identifies action steps for branch management to drive revenue and reduce costs
• Provides training for branch management and associates
• Fosters a culture of accountability and integrity
• Identifies leading practices and potential enhancements to branch policies / procedures and controls
• Provides opportunities to solicit feedback from branch personnel
• Identifies gaps in the brand consistency and service delivery across all branches
• Measures operational performance and provides visibility into key performance indicators, which enables management to
make informed business decisions.
• Prevents potential legal fines or penalties by proactively identifying issues
• Assists in the prevention and detection of internal and external theft
Approach What will the Management gained? Level
Cycle-based
Routine audits give branches the impression they are always being monitored
Beginner &
Intermediate
Easy to compare audit results across all branches over a set time period
Audit results can be built into performance evaluations or bonuses for branch management
Learn best practices from strong performing branch
Risk-based
Higher-risk branches are audited more often, enabling management to timely address issues impacting
branch performance
AdvancedCost effective since it requires less resources to meet the risk appetite
Provides auditors the option of not utilizing the full audit program by only reviewing high risk areas, which
may enable greater overall branch coverage
Internal Audit Start-up Framework
Stakeholder
Expectations
Mission
Statement
Strategic Plan
Audit Plan, Risk
& Processes
Establish
Charter/Policy/SOP
Launch Fieldwork
soonest possible
(Performance)
Access Needed
Skill sets
Develop
Infrastructure &
Resources
Establish Communication Protocol Measure Results
Quality Assurance
(Auditor Evaluation)
Stakeholder
Expectations
Understand stakeholder
expectations
Understand the industry
and the organization’s
objectives
Mission Statement
Develop mission
and set vision
Internal Audit
Strategic
Framework
Establish
Charter/Policy/SOP
Define the critical
success factors
(Metric)
The Core Values
The Value
Management
Strategic Plan
Scope/Key Control
Objective
Risk Appetite
Short Term
Medium Term
Long Term
Develop Internal
Audit Charter
The Audit Plan
Draft
The Audit Plan
Internal Audit Management System
Financial Year
Year End Closing
Stocktake
Peak Hours
Audit Plan, Risk &
Processes
Test 1st Branch
Implementation
Schedule & Notice
Questionnaires/key objectives/checklist
items and cross check system
Test 2nd Branch
Test 3rd Branch
Corrective Action
Exceptions
Test 4th Branch
Test 5th Branch
Test 6th Branch
Test 7th Branch
Test 8th Branch
Fieldwork
Internal Audit
Reporting
Access Needed
Skill sets
Training & Development
Final
Report
Follow up
Best Practises
Policy & SOP Review
Develop Infrastructure
& Resources
Measure Result
Metrics
Analysis
Action Plan
Grading
Corrective Action
Risk Based IA
Communication
Protocol
Audit Committee
Deliveries
Tel & Fax
Intranet
Apps Quality Assurance
(IA Evaluation)
IA Questionnaires
Management
Internal Audit
External Audit
25% People
• Quality of professional staff
• Ability to address specialised and technical needs
• Understanding of the business and the global business
environment
• Interaction and communication with line management
executives
• Development of management talent for the organisation
25% Internal Audit Process Effectiveness
• Rapid and effective start-up
• Effective and timely communications
• Development and delivery of practical recommendations to
improve
• internal controls and corporate governance
• Results of auditee satisfaction questionnaires
25% Risk Management
• Timely and effective identification of key business risks
• Percentage of audit activities and resources allocated to
addressing key business risks
• Adaptability and responsiveness to emerging risks
• Understanding and fulfilment of the needs of:
– The audit committee
– Executive management
– R&D to sustain Organisation, business climate and progress.
25% Value Added to the Business
• Protection of shareholder value through an improved control
environment
• Enhanced shareholder value through:
– Cost reductions
– Reduced revenue leakage
– Reduced working capital
– Enhanced cash flow
Internal Audit Balanced Scorecard
Sample Internal Audit Reporting
Internal Audit Report 2016 Branch: A Date: 15/9/2016 IA Team: Jeremy
Value Management: People Progressive Relationship Management/Audit Committee
No Checklist Item Findings/Issues Internal Audit
Recommendation
Risk Factor
Category
Feedback by Branch
Head
Grading Action Plan
1. Workforce will
be able to put
forward skills
professionally
Some staff not sure
their job functions.
Upon interview, they
claimed the Manager
have not brief them
properly
Branch staff should
be re-brief and to
list down their job
functions and
scope.
Reputational Risk-
customer might
complain of poor
service and will go
for competitors
The staff actually just
started working. We
will train him and list
out the job functions
and scope accordingly.
Value Management: Process (Operations) Care & Support Management/Audit Committee
No Checklist Item Findings/Issues Internal Audit
Recommendation
Risk Factor
Category
Feedback by Branch
Head
Grading Action Plan
1. Accurate
inventory and
financial data
input and
output
Poor recording of
stock. Item YH (Serial
No. ZZ) was key in as
Honda EX5 thus
creating inaccurate
Inventory recoding in
the system. Refer
Appendix 1 (Photo
illustration)
Inventory Clerk will
need to clarify the
mistake and to
ensure such mistake
will not occur in the
future. Always
double check the
DO
Operational Risk-
Failure to provide
accurate inventory
report will
jeopardise the
Company Financial
Policy
The staff promised not
to repeat the mistake.
Nonconformity
Need
Improvement
Internal Audit
Recommendation
Observation
Show cause
Effective
Adequate
Unsatisfactory
Poor
Nonconformity
Need
Improvement
Internal Audit
Recommendation
Observation
Show cause
Effective
Adequate
Unsatisfactory
Poor
Comment:
Comment:
Sample Analysis I Result
Branch A Branch B
Branch C Branch D
Common Audit Findings
• Lack of written procedures.
• Inefficient and ineffective processes
or procedures
• Improper use of General Ledger
accounts.
• Insufficient documentation to
support travel claims.
• Petty-cash policies are not being
adhered to.
• Miscalculation of Goods and Services
Tax (GST) receivable
• Lack of Inventory Controls
• Failure to Comply with Contracts or
Agreements
• Lack of Procedures to Mitigate Risk
• Inadequate IT Physical Security
• Non-compliance with Revenue
Processing Policy
• Failure to Secure Sensitive Data
5%
10%
10%
30%
45%
Effective Adequate Unsatisfactory
Poor Nonconformity
80%
10%
8%1%1%
Effective Adequate Unsatisfactory
Poor Nonconformity
1%1%
19%
19%60%
Effective Adequate Unsatisfactory
Poor Nonconformity
50%
40%
8%1%1%
Effective Adequate Unsatisfactory
Poor Nonconformity
Sample Analysis 2 Result
80%
10%
8% 1%1%
Effective Adequate Unsatisfactory Poor Nonconformity
Branch B
20%
20%
30%
20%
10%
People
Effective Adequate
Unsatisfactory Poor
Nonconformity
67%
17%
13%1%2%
Process (Operations)
Effective Adequate
Unsatisfactory Poor
Nonconformity
40%
30%
20%
5%5%
Research & Development
Effective Adequate Unsatisfactory
Poor Nonconformity
Sample Auditor Evaluation Score
Excellent
90%
Good
5%
Poor
5%
BRANCH A
Excellent
95%
Good
3%
Poor
2%
BRANCH B
Excellent
70%
Good
20%
Poor
10%
BRANCH C
Excellent
45%
Good
33%
Poor
22%
BRANCH E
Excellent
60%
Good
30%
Poor
10%
BRANCH D
Excellent
33%
Good
56%
Poor
11%
BRANCH F

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Internal Audit Strategic Framework

  • 1. Internal Audit Department Mission Statement: To be the Assurance Provider, Problem Solver, Insight Generator and Trusted Advisor for the Company… Tagline: “Increase profitability at the same time optimising operational costs with precision reporting”
  • 2. Internal Audit Strategic Framework Mission • Charter of the Internal Audit Entity • Setting up a comprehensive, low cost Internal Audit Methodology • Effective Internal Audit Process Flow • Streamlined Policy, SOP for efficient financial data capturing in the system and business operations. • Maintaining optimum and sustainable operational cost measures • Increase productivity • Check and balance Short Term • Direct Planning, organising and monitoring operational & financial audits • Review existing company assets and stock control • Ensure all inventory and stock management system are maintained accurately with agreed parameter & timely • Recommend methods to enhance and improve control procedures. • Documentation of results, evaluation, reviews, plan, resolution by Management on audit issues or findings. • Preparation of audit plans & schedule for audit and stock take for every Operation divisions • Obtaining documents and information from every operation divisions and to communicate on improving the productivity and internal control Medium Term • Setting up an effective and workable metric for Internal Auditing measurement • Self appraisal by Operation divisions and setting spot check schedules • Obtaining possible improvement on productivity and control system from operation divisions through feedback and “Suggestion Box” • To improve documentation and reporting based on international standard such as ISO 9000 - Quality management and ISO 31000 - Risk management • To propose an advance and high technology Internal Audit Management System Long Term • Implementation of sophisticated cost cutting tools & improvement on productivity management using latest technology with higher accuracy • Web-based Internal Audit Methodology (Paperless) • Mobile Apps for Internal Audit Reporting • Accurate Mobile Apps for Real Time Productivity view and supports Vision • Assist the Company to be the market leader • Assist the company to seek and assure investors for future Public listing in Stock Market • Creation of Value Management • Future Business Model (Consultation Services)
  • 3. The Value Management The Core Values People Progressive Relationship  Workforce will be able to put forward skills professionally.  Dedicated and effective workforce.  Workforce will be highly motivated.  Appeal and attraction to Gen Y to join and contribute.  Multitasker and multi talents.  Workforce will grow and be the future branch supervisor or manager. Research & Development Reliability  Users will fully utilize and perform tasks efficiently with current systems. Flexibility  Fast deployment  Accurate and effective user control. Sustainability  R&D initiatives will be able to sustain Organisation, business climate and progress with updates or additional features Process (Operations) Care & Support  Priority to customer grievance.  Time keeping on Actions and follow ups  Accurate inventory and financial data input and output Cost Efficiency  Efficient utility management  Avoid mistakes and errors  Avoid wastage  Green Technology Profitable Volume Growth  Achievable sales target  Achievable operational cost cutting measures  Purchase and Costing initiatives  Market expansion
  • 4. Strategic Framework Measurement StakeholderValue CustomerValue People R&DProcess (Operations) Value Management Profitability & Productivity? Assets and Cost Control? Company Policy & Standard? Data Accuracy? Internal Audit Strategy The Measurements Progressive Relationship Reliability Flexibility Sustainability Care & Support Cost Efficiency Profitable Volume Growth • Strategic Risk • Compliance Risk • Operational Risk • Financial Risk • Reputational Risk
  • 6. Strategic Risk A possible source of loss that might arise from the pursuit of an unsuccessful business plan. For example, strategic risk might arise from making poor business decisions, from the substandard execution of decisions, from inadequate resource allocation, or from a failure to respond well to changes in the business environment. Compliance Risk Exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices. Operational Risk The prospect of loss resulting from inadequate or failed procedures, systems or policies. Financial Risk Possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations. When a company uses debt financing, its creditors are repaid before its shareholders if the company becomes insolvent. Reputational Risk Loss resulting from damages to a firm's reputation, in lost revenue; increased operating, capital or regulatory costs; or destruction of shareholder value, consequent to an adverse or potentially criminal event even if the company is not found guilty Risk Appetite Risk appetite can be defined as the amount and type of risk that an organisation is willing to take in order to meet their strategic objectives.
  • 7. Key Benefits • Identifies action steps for branch management to drive revenue and reduce costs • Provides training for branch management and associates • Fosters a culture of accountability and integrity • Identifies leading practices and potential enhancements to branch policies / procedures and controls • Provides opportunities to solicit feedback from branch personnel • Identifies gaps in the brand consistency and service delivery across all branches • Measures operational performance and provides visibility into key performance indicators, which enables management to make informed business decisions. • Prevents potential legal fines or penalties by proactively identifying issues • Assists in the prevention and detection of internal and external theft Approach What will the Management gained? Level Cycle-based Routine audits give branches the impression they are always being monitored Beginner & Intermediate Easy to compare audit results across all branches over a set time period Audit results can be built into performance evaluations or bonuses for branch management Learn best practices from strong performing branch Risk-based Higher-risk branches are audited more often, enabling management to timely address issues impacting branch performance AdvancedCost effective since it requires less resources to meet the risk appetite Provides auditors the option of not utilizing the full audit program by only reviewing high risk areas, which may enable greater overall branch coverage
  • 8. Internal Audit Start-up Framework Stakeholder Expectations Mission Statement Strategic Plan Audit Plan, Risk & Processes Establish Charter/Policy/SOP Launch Fieldwork soonest possible (Performance) Access Needed Skill sets Develop Infrastructure & Resources Establish Communication Protocol Measure Results Quality Assurance (Auditor Evaluation)
  • 9. Stakeholder Expectations Understand stakeholder expectations Understand the industry and the organization’s objectives Mission Statement Develop mission and set vision Internal Audit Strategic Framework Establish Charter/Policy/SOP Define the critical success factors (Metric) The Core Values The Value Management Strategic Plan Scope/Key Control Objective Risk Appetite Short Term Medium Term Long Term Develop Internal Audit Charter The Audit Plan Draft The Audit Plan Internal Audit Management System Financial Year Year End Closing Stocktake Peak Hours
  • 10. Audit Plan, Risk & Processes Test 1st Branch Implementation Schedule & Notice Questionnaires/key objectives/checklist items and cross check system Test 2nd Branch Test 3rd Branch Corrective Action Exceptions Test 4th Branch Test 5th Branch Test 6th Branch Test 7th Branch Test 8th Branch Fieldwork Internal Audit Reporting Access Needed Skill sets Training & Development Final Report Follow up Best Practises Policy & SOP Review Develop Infrastructure & Resources Measure Result Metrics Analysis Action Plan Grading Corrective Action Risk Based IA Communication Protocol Audit Committee Deliveries Tel & Fax Intranet Apps Quality Assurance (IA Evaluation) IA Questionnaires Management Internal Audit External Audit
  • 11. 25% People • Quality of professional staff • Ability to address specialised and technical needs • Understanding of the business and the global business environment • Interaction and communication with line management executives • Development of management talent for the organisation 25% Internal Audit Process Effectiveness • Rapid and effective start-up • Effective and timely communications • Development and delivery of practical recommendations to improve • internal controls and corporate governance • Results of auditee satisfaction questionnaires 25% Risk Management • Timely and effective identification of key business risks • Percentage of audit activities and resources allocated to addressing key business risks • Adaptability and responsiveness to emerging risks • Understanding and fulfilment of the needs of: – The audit committee – Executive management – R&D to sustain Organisation, business climate and progress. 25% Value Added to the Business • Protection of shareholder value through an improved control environment • Enhanced shareholder value through: – Cost reductions – Reduced revenue leakage – Reduced working capital – Enhanced cash flow Internal Audit Balanced Scorecard
  • 12. Sample Internal Audit Reporting Internal Audit Report 2016 Branch: A Date: 15/9/2016 IA Team: Jeremy Value Management: People Progressive Relationship Management/Audit Committee No Checklist Item Findings/Issues Internal Audit Recommendation Risk Factor Category Feedback by Branch Head Grading Action Plan 1. Workforce will be able to put forward skills professionally Some staff not sure their job functions. Upon interview, they claimed the Manager have not brief them properly Branch staff should be re-brief and to list down their job functions and scope. Reputational Risk- customer might complain of poor service and will go for competitors The staff actually just started working. We will train him and list out the job functions and scope accordingly. Value Management: Process (Operations) Care & Support Management/Audit Committee No Checklist Item Findings/Issues Internal Audit Recommendation Risk Factor Category Feedback by Branch Head Grading Action Plan 1. Accurate inventory and financial data input and output Poor recording of stock. Item YH (Serial No. ZZ) was key in as Honda EX5 thus creating inaccurate Inventory recoding in the system. Refer Appendix 1 (Photo illustration) Inventory Clerk will need to clarify the mistake and to ensure such mistake will not occur in the future. Always double check the DO Operational Risk- Failure to provide accurate inventory report will jeopardise the Company Financial Policy The staff promised not to repeat the mistake. Nonconformity Need Improvement Internal Audit Recommendation Observation Show cause Effective Adequate Unsatisfactory Poor Nonconformity Need Improvement Internal Audit Recommendation Observation Show cause Effective Adequate Unsatisfactory Poor Comment: Comment:
  • 13. Sample Analysis I Result Branch A Branch B Branch C Branch D Common Audit Findings • Lack of written procedures. • Inefficient and ineffective processes or procedures • Improper use of General Ledger accounts. • Insufficient documentation to support travel claims. • Petty-cash policies are not being adhered to. • Miscalculation of Goods and Services Tax (GST) receivable • Lack of Inventory Controls • Failure to Comply with Contracts or Agreements • Lack of Procedures to Mitigate Risk • Inadequate IT Physical Security • Non-compliance with Revenue Processing Policy • Failure to Secure Sensitive Data 5% 10% 10% 30% 45% Effective Adequate Unsatisfactory Poor Nonconformity 80% 10% 8%1%1% Effective Adequate Unsatisfactory Poor Nonconformity 1%1% 19% 19%60% Effective Adequate Unsatisfactory Poor Nonconformity 50% 40% 8%1%1% Effective Adequate Unsatisfactory Poor Nonconformity
  • 14. Sample Analysis 2 Result 80% 10% 8% 1%1% Effective Adequate Unsatisfactory Poor Nonconformity Branch B 20% 20% 30% 20% 10% People Effective Adequate Unsatisfactory Poor Nonconformity 67% 17% 13%1%2% Process (Operations) Effective Adequate Unsatisfactory Poor Nonconformity 40% 30% 20% 5%5% Research & Development Effective Adequate Unsatisfactory Poor Nonconformity
  • 15. Sample Auditor Evaluation Score Excellent 90% Good 5% Poor 5% BRANCH A Excellent 95% Good 3% Poor 2% BRANCH B Excellent 70% Good 20% Poor 10% BRANCH C Excellent 45% Good 33% Poor 22% BRANCH E Excellent 60% Good 30% Poor 10% BRANCH D Excellent 33% Good 56% Poor 11% BRANCH F