Not only has management’s need for information grown, but accountability for the appropriate and efficient use of institutional resources has become a matter of great concern to students, legislative bodies, government agencies, the general public, and all levels of institutional management. Internal auditing is no longer limited to the practice of ensuring appropriate financial activity and policy compliance. Internal auditors now also evaluate the effectiveness of system procedures and activities in operational audits. Thus, the full scope of internal auditing encompasses an examination of financial transactions, including an evaluation of the adequacy of controls; an evaluation of compliance with and adequacy of applicable policies and other requirements both internal and external; and a review of the effectiveness of the use of institutional resources. Internal auditing is concerned with every phase of institutional activity.

The internal auditing process should include:
• Examining financial transactions for accuracy and compliance with an organization’s policies
• Evaluating financial and operational procedures for adequate internal controls
• Testing the timeliness, reliability, and usefulness of organizational records and reports
• Evaluating the cost-effectiveness of operations and activities
• Monitoring the development, implementation, and major revision of methods, systems, and procedures, including those pertinent to computer applications
• Evaluating and monitoring the computer center’s system of internal control to ensure adequate security and controls related to hardware, software, data, and operating personnel and to ensure retrieval of necessary data for audit purposes
• Evaluating control over end-user computing
• Determining the level of compliance with required internal policies and procedures, state and federal laws, and government regulations
• valuating program performance and program or contractor monitoring
• Coordinating work with external auditors
• Reviewing the contractual and project management control for projects

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In addition to reviewing compliance with policies, plans, and procedures, the internal auditing reviews the appropriateness of these in light of current conditions.


Financial Audits

Financial audits determine whether the financial statements or other reports provide timely, accurate, relevant, reliable, and complete information upon which to make decisions. Financial audits concentrate on accounting controls, which can be divided into three principal areas:
• Control of assets
• Systems of authorization and approval
• Separation of accounting duties from those concerned with operations or custody of assets

In financial audits, the primary concerns are the determination of the reliability and accuracy of financial data, including supporting records, and the evaluation of internal financial controls.

Operational Audits
An operational audit evaluates activities, identifies inefficient and ineffective practices, and recommends measures for corrective action. These audits provide an objective examination of operational controls, systems, and procedures. A financial audit can be extended into an operational audit simply by changing the direction of the audit. Any department within an organization that has measurable goals and objectives is a candidate for an operational audit. An operational audit ensures that maximum benefit is received for the resources expended. Administrative activities are measured and evaluated against standards set by management. Such performance standards may be communicated by various means, including long-range plans, budgets, job assignment sheets, or production schedules.

Compliance Audits
Compliance audits are concerned with adherence to applicable policy, laws, regulations, and other administrative requirements. Internal auditors must spend an increasing amount of time on such audits because of the severe consequences of noncompliance with certain regulations. These consequences can be monetary refunds, loss of future funds, or damage to the organization’s reputation. In many cases, compliance audits may help prevent adverse findings in an external audit.

Investigative Audits
Fraud and other financial irregularities are committed by managers, employees, and others who have access to an organization’s information and resources. The internal auditor is often called upon to do special investigations when such incidents occur or when there is suspicion of such an occurrence.

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