Internal auditors can provide both assurance work and consulting services to an organization. There are six main types of consulting work: formal engagements, informal engagements, emergency services, assessment services, facilitation services, and remedial services. The document then outlines the typical steps and considerations for an internal audit consulting engagement, including: establishing initial terms of reference, conducting a preliminary survey, establishing suppositions, developing an audit work program, performing detailed field work, determining underlying causes, defining and evaluating options, testing selected options, discussing options with management, and reporting findings.
2. The Consulting Approach of IA
Internal auditors have been providing a form of internal consulting
service for many years. The contemporary standards now make it
crystal clear that internal audit may provide consultancy as well as
assurance work to an organization. In general there are six types of
consulting work:
1. Formal engagements — planned and written agreement.
2. Informal engagements — routine information exchange and
participation in projects, meetings etc.
3. Emergency services—temporary help and special requests.
4. Assessment services—information to management to help them
make decisions, e.g. Proposed new system or contractor.
5. Facilitation services—for improvement, e.g. benchmarking, planning
support.
6. Remedial services—assume direct role to prevent or remediate a
problem, e.g. Training in risk management, internal control,
compliance issues drafting policies.
3. Initial Terms Of Reference For The Work
• Key manager briefing and discussions on the review.
• Outline symptoms and main problem areas.
• Management success criteria established.
• Brief history of events relevant to the issue in hand documented.
• Indication of specific constraints acknowledged by management.
• Management policy on unacceptable solutions, e.g. staff cuts or
major restructuring.
• Indication of future plans that management has set for short and
medium terms.
4. Preliminary Survey
• Committee/board minutes that impact on the review.
• Brief discussions with staff to assess general consistency with key
problems.
• Performance indicators.
• Analyse symptoms and capture ‘what is really wrong’.
• Internal reports and budgets.
• Relevant published research that relates to the particular field of
work.
• Visits to the location.
5. Establish Suppositions
• Effects of the problem on performance, quality and value for
money.
• Materiality of the problem.
• Hierarchy of suppositions, the most significant ones first.
• Indications of how the suppositions may be tested to establish
whether they are correct or not.
• Likely causes of problems (based around the suppositions).
• Overall extent of the problem.
6. Audit Planning And Work Programme
• Number of auditors required and time budgets.
• Levels and types of expertise required.
• Supervision of staff assigned to the project; how often and how this
will be done.
• Guidance on testing.
• Review arrangements covering audit work as it is performed.
• Reporting arrangements.
• Programme of work (much will consist of research and testing).
• Time available and deadlines. For longer projects it is good practice to
set milestones with defined products and progress review points.
• Administrative arrangements including travel, expenses,
accommodation, computers, etc.
7. Detailed Field Work
• Programmed interviews.
• Available research that will have to be secured and taken on board.
• Re-performance of specific tasks if required.
• Independent expert opinion where appropriate.
• Inspection.
• Cause-and-effect analysis.
• Statistical analysis.
• Questionnaires.
• Construction of new performance indicators if required.
• Other specific testing routines.
8. Determine Underlying Causes Of Problems
• Detailed discussions with management.
• Review of managerial structures.
• Review of existing managerial practices.
• Determination of the extent of influence of the external environment.
• Level of managerial control and guidance available to staff.
• Establishing a clear relationship between problems and causes.
• Distinguishing between symptoms and these underlying causes.
9. Define And Evaluate Available Options
• Extensive research in isolating suitable options.
• Ideas from managers and staff.
• Textbook solutions can form a starting place.
• Model building.
• The application of creative thinking.
• Determination of relevant best practice elsewhere that is transferable.
10. Test Selected Options
• Defined benefits.
• Staff expertise available and required.
• Actual financial costs.
• Resource implications generally.
• Motivational aspects and impact on work flows.
• Timetable for implementation.
• Political aspects.
• Knock-on effects for other systems.
• Incremental improvements or the more risky ‘big bang’ approach.
• Overall impact on ‘the problem’.
• Whether it complies with the fundamental ‘rules’ of successful
change management.
11. Discuss With Management
• Constraints that confront management, including practicalities.
• Agree factual content of report.
• Bear in mind the costs of the audit and the need to provide a
defined benefit.
• Watch the psychology of negotiations—e.g. seek partial
compromise where necessary.
• Keep in mind managerial objectives and their real success criteria.
• Consider level of work carried out and the extent to which we can
be sure of our position.
• Consider overall acceptability of the audit work.
12. Report
• Report needs to be formally cleared for final publication.
• It should ideally be an extension of the oral presentation.
• Make sure report is factually correct.
• All managerial input should be properly reflected.
• Report structure should be good and well written.