For many small and medium businesses, audit means the statutory audit at year end. By then the books are closed, and any errors, leakages or weak controls have already cost money. An internal audit works during the year, while there is still time to correct the process.
From checking entries to reviewing risk
A traditional internal audit looked mainly at vouchers and ledgers. A risk-based internal audit starts with a different question: which areas of this business carry the most risk? The audit plan then concentrates on those areas, such as purchases and payments, sales and collections, inventory, payroll and statutory compliance.
What a business gains
- Stronger internal controls. Gaps such as one person both approving and paying vendors, or stock moving without proper records, are found and closed.
- Fewer losses. Duplicate payments, unbilled sales, excess stock and missed input tax credit are identified early.
- Reliable numbers for decisions. Regular review of books and MIS reports means owners and lenders can rely on the figures in front of them.
- Smoother statutory audits. When reconciliations and documentation are kept up to date through the year, the year-end audit is faster and has fewer qualifications.
- Compliance on time. GST, TDS, PF, ESI and Professional Tax filings are checked as part of the review, which reduces the risk of interest and penalties.
Purchase-to-pay and order-to-cash
Two processes deserve special attention in most organisations. In purchase-to-pay, the audit checks that every payment matches an approved order, a goods receipt and a valid invoice. In order-to-cash, it checks that every dispatch is billed, every invoice is accounted for and outstanding receivables are followed up. Small lapses in either process add up quickly.
How often should it be done?
This depends on the size and nature of the business. Clubs, associations and growing companies often benefit from a monthly or quarterly internal audit, with a short report to management after each visit. Each report should list the observations, their financial impact and a practical recommendation, so that action can be taken before the next review.
How we can help
Our firm provides internal audit services, review of business processes and internal control systems, and preparation of MIS reports. If you would like to understand where your organisation stands, please contact us.