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Leadership 101 – The Role and Responsibility of Directors – Part 7

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Please note that this pertains to South African Legislation, the King Requirements and Best Practice.

Today we are having a look at the Roles and Responsibility of Directors in terms of Internal Audit.

Now I understand that most of the SME arena do not have the financial capacity to have an Internal Audit Division as such, but that said there should still be someone looking after the risk aspect of things.

Some of the questions that should be asked by Directors are (but not limited to):-

– Is there an Internal Audit Strategy in place and if so does the plan focus on areas that are most likely to impact the business and therefore the stakeholders?

– Are the Internal Audits effective and frequent enough and is there sufficient frequent communication with the audit committee and the Board of Directors.

– Does the Internal Audit Department have the appropriate level of technical and analytical skills required to address all the different types of industry risk that pertain to the business and how often are they measured and assess to ensure that their abilities remain current and are adequate?

– Is technology adequately utilized in the Internal Audit processes (where applicable) and does it use the existing systems and data effectively in the performance of it work?

– Does the Internal Audit function compare favorably against its peers in benchmark studies and if not how will it be brought up to speed?

– What is the true absorbed cost of Internal Audit. Are these costs evaluated on an annual basis?

– Does the Internal Audit function have all the necessary skills as well as diverse skills that are required to give confidence to the audit committee on internal financial control.

– Is an annual assessment conducted on the chief audit executives in order to ascertain if the key attributes that are relevant to the business are being me on an ongoing basis?

– Is there enough assurance of the Ethics and Risk Management programs?

– In terms of the most recent losses – did Internal Audit provide any form of comfort that these would not re-occur in the future?

– Finally, does the Internal Audit function have all the necessary skills that they require in order to give the Audit Committee assurance on the internal financial controls as well as the operational, administrative and HR Controls in the Company?

Next time we will have a look at specifically what those financial controls are and what is required.