Internal auditors are a company’s financial watchdogs. Their task is to objectively examine a company’s financial documents and review the operating procedures independent of management. When internal auditors are placed in a consulting role, they focus on a specific department instead of the overall company. This may result in a conflict of interest between the duties of the independent auditor and those of a consultant.
The Internal Audit
Three parties are involved with an internal audit: the internal auditors, the audit committee and the department being audited. The focus is on how the department functions within the company. The internal auditors randomly sample documents, review manuals and observe how work flows through the department. Auditors look for signs of asset mismanagement and fraud. They also test risk management controls. The internal auditors report their findings directly to the audit committee. The audit committee reviews the report and meets with the department manager to discuss the audit results.
Auditor as Consultant
Unlike an internal audit, only two parties are involved with a consultation: the internal auditor and the department manager. As a consultant, the internal auditor does not have any managerial or decision-making responsibility. The auditor will review the department procedures and observe the employees in action. As a consultant, the internal auditor will give advice and suggest changes to improve the department. The internal auditor works with managers to implement the changes and assist with employee training.
Auditor vs. Consultant
Several risks are taken when staff internal auditors are used as consultants. As consultants, the auditors appear to be working for a specific manager or department instead of for the overall company. The auditor’s objectivity and independence can appear to be lost. A conflict of interest can arise when the auditor turned consultant has to audit or oversee an audit of her own previous work. In addition, a company’s internal auditing staff is only so large. Using them as consultants within their own company reduces the number of auditors available to conduct company-wide internal audits.
Auditor and Consultant
Business owners and executives are remaking the role of the internal auditor. Controlling and managing risk is one of management’s biggest concerns. Instead of just an audit report, management wants internal auditors to help develop and implement risk controls. Internal auditors continue struggling to balance their traditional independence and objectivity with their increased role as consultants.
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