The term efficiency refers to the volume of input needed to produce a certain output. Fewer inputs used for the same output, or the same inputs used to get larger output, result in increased efficiency. When it comes to internal audit work, efficiency can be measured in various ways and for different audit activities. Efficiency should be of particular interest when it comes to completing audit activities with scarce resources.
Many internal audit departments struggle to complete the audit plan within a certain time and improve efficiency. From this point of view, one could measure audit efficiency by the number of hours spent on executing audit procedures and other activities relevant for audit completion. Focusing on inputs of audit work, there are specific aspects that should be addressed to measure and improve audit efficiency.
Practitioners should strive for a transparent approach to the audit plan, rather than keeping it a secret. While an element of surprise is important for certain audit engagements, it is not the case for most engagements. Additionally, announcing an audit early can help manage audits during challenging periods, such as during the holidays or vacation season. This could potentially avoid possible bottlenecks of having to wait for the documentation to be delivered or client availability for interviews. After all, if auditors strive to be trusted advisors to their organizations and there is trust on both sides, there should be transparency.
When developing audit plans, internal audit should assess the working hours needed separately for each engagement. Setting up the same, or average, resources as a uniform standard does not help measure and improve audit efficiency. When done that way, some engagements will be under time constraints, while others will have more time than needed. Other important aspects that require realistic consideration and planning include vacations, sick leave, and administrative and other audit activities, as well as any resources needed for fraud investigations and consulting activities, which may occur during the same time as the audit engagement.
Scheduling the engagements allows all employees — not just internal auditors — to be aware of what is expected from them and to schedule their activities accordingly. Waiting to schedule engagements until after the completion of the previous audit can lead to huge workloads and pressure for the audit team, as well as discourage efficiency improvements. Worse, it can lead the department to stagnate or lose efficiency.
Deadlines and Exceptions
Clearly defined audit engagement completion deadlines are necessary for efficiency. They should be treated as time management guidelines that help auditors stay in line with relevant plans and targets, rather than strict, rigid limitations. The absence of deadlines could create chaos within the audit department and result in engagements that never end. While prolonged deadlines are sometimes needed, they should be the exception and not the rule. If they occur frequently, it may indicate that the audit planning or execution is not working correctly.
Empowering Audit Teams
Trusting audit team members to organize and execute engagements, stay in line with audit methodologies, and keep to deadlines without constantly checking on them allows them to find their own flexible solutions to accomplish their goals. In a trustful, open, and honest relationship, leaders step in when asked to help solve any problems encountered by auditors that they're not able to work through on their own. This trust should also exist among audit team members.
Automating Audit Procedures
Automating audit procedures can improve work efficiency by providing quicker analytical insights on data, trend analysis, graphical representations, and outlier identification. However, overreliance on automation could have an adverse effect if its use is not thought through. It may result in more manual work after the automated procedures have been completed in comparison to the manual execution of relevant audit procedures.
Consider Stop-and-go Auditing
A stop-and-go audit approach may help some departments find efficiency and add value. When planning an audit project, the lead auditor develops:
After the planning phase, the lead auditor and audit manager make a "stop or go" decision. If an assessed risk is lower in comparison to other areas not in the plan, they write a memo explaining why to all concerned parties.
If the decision is made to proceed with the audit, the next step is to assess the design of the controls over the key risks. If it is concluded that the controls are well-designed and auditors are satisfied with the culture, they might stop the audit without performing any testing. An audit report is issued, but it states very clearly that the opinion is only on the design, and this is understood by all parties. Or, they proceed to full testing.
This technique runs the risk of missing deficiencies, but that is always a possibility. Stopping audits when there is a sufficient comfort with the risk saves time to audit other areas that seemed less risky during the periodic planning process, but are now perceived to have greater risk.
There is no unique set of efficiency-related key performance indicators (KPIs) that fit all audit activities. When designing KPIs, auditors can apply the usual risk assessment approach to identify which aspects require action. Good starting points are assessing current efficiency; observing the strengths, weaknesses, and motivational aspects for auditors; and identifying risks. With this approach, the audit function can identify the aspects it should focus on to improve efficiency, and create and verify relevant KPIs in line with the assessment.
Monitoring progress also is important for measuring and improving audit efficiency. Designing a dedicated dashboard for this purpose, with the aim of having continuous, real-time results readily available, would give an overview of the whole audit department. In this way, all audit team members could constantly monitor their progress, note when and where corrective actions are needed, and implement them timely.
Considering that internal auditors are trusted advisors who are expected to provide valuable and useful insights, actions to measure and improve audit efficiency are meaningless if they result in poor quality audits. Thus, maintaining the holy union of efficiency and quality should never be questioned or compromised.