Internal Audit: What It Is, How It Works, and How to Set It Up in Your Company

Despite this, many companies still view internal auditing solely as an oversight activity or as a requirement related to external audits.

In practice, a well-structured internal audit can help an organization:

• Identify risks;
• Evaluate internal controls;
• Identify nonconformities;
• Verify compliance with policies and procedures;
• Identify opportunities for improvement;
• Monitor action plans;
• Strengthen corporate governance;
• Support strategic decisions.

Therefore, internal auditing should not be viewed merely as a snapshot of the current situation.

It should help the organization understand where risks exist, which controls are effective, and what needs to be improved.

In this article, you’ll learn what internal auditing is, how to structure the process, what steps to consider, and how to link auditing to risks, controls, and action plans.

What Is Internal Auditing?

Internal Audit It is a structured, independent, and objective assessment activity designed to analyze an organization's processes, risks, controls, and practices.

The goal is to provide information that will help the company improve its governance, risk management processes, and controls.

An audit can assess, for example:

• Financial processes;
• Operational processes;
• Internal controls;
• Compliance;
• Information security;
• Data protection;
• Supplier management;
• Internal policies;
• Risk management;
• Regulatory requirements.

The scope depends on the organization's objectives and the risks that need to be assessed.

What is the purpose of an internal audit?

The primary function of Internal Audit is to provide a structured overview of the effectiveness of the organization's processes and controls.

It can help answer questions such as:

• Are the defined controls working?
• Are the processes being carried out in accordance with the policies?
• Are there any unaddressed risks?
• Are there any controls that need to be improved?
• Are the departments fulfilling their responsibilities?
• Are corrective actions being implemented?
• Are there any recurring nonconformities?

These responses help management make decisions with greater confidence.

Internal auditing is not just about oversight

A narrow view of auditing is to think that its purpose is to find errors and pinpoint those responsible.

A more mature approach uses auditing to understand Why the problem occurred and how to prevent it from happening again.

Imagine that an audit uncovers a flaw in the payment approval process.

The question shouldn't just be:

“Who made the mistake?”

It is also necessary to ask:

“Why did the process allow this error to occur?”

The answer may reveal a control failure, a lack of segregation of duties, a lack of training, or an inadequately designed process.

This type of analysis transforms the audit into a tool for continuous improvement.

What is the difference between an internal audit and an external audit?

Although both can evaluate processes and controls, they have different objectives and contexts.

The two approaches can coexist and contribute to strengthening corporate governance.

How to Structure an Internal Audit?

An effective internal audit requires a systematic approach.

A structured process can follow these steps:

Planning → Risk Assessment → Scope Definition → Execution → Evidence → Findings → Report → Action Plan → Monitoring

Each step plays an important role.

1. Audit Planning

The first step is to determine what will be audited and why.

Planning should take into account the organization's strategic objectives and existing risks.

Some important questions are:

• Which process will be audited?
• What is the goal?
• What is the period under review?
• What requirements will be evaluated?
• What risks are involved?
• Which controls will be tested?
• Who will be responsible?
• What is the deadline?

Good planning prevents audits from being overly broad or irrelevant.

2. Risk-Based Assessment

A thorough audit should take into account the level of risk associated with each process.

It doesn't make sense to devote exactly the same amount of effort to all of the organization's processes.

Areas with greater exposure may be given priority.

Here are some criteria to consider:

• Financial impact;
• Operational impact;
• Regulatory risk;
• Reputational risk;
• Incident history;
• Results of previous audits;
• Complexity of the process;
• Recent changes;
• Business Criticality.

This approach makes it possible to allocate resources to the areas that could truly jeopardize the organization.

3. Defining the Scope

The scope defines the boundaries of the audit.

He should make it clear:

• What will be analyzed;
• What will not be analyzed;
• Which periods will be considered;
• Which units will be involved;
• Which requirements will be used;
• Which controls will be evaluated?

A well-defined scope reduces ambiguity during execution.

4. Definition of audit criteria

To evaluate a process, the auditor needs to know Which reference will be used?.

The criteria may include:

• Legislation;
• Regulations;
• Internal policies;
• Procedures;
• Contracts;
• Standards;
• Customer requirements;
• Best practices.

The audit results will be compared with these criteria.

5. Conducting the Audit

During the audit, the auditor gathers information and verifies that the processes and controls are functioning as expected.

Techniques such as the following can be used:

• Interviews;
• Literature review;
• Control tests;
• Sampling;
• Note:;
• Record analysis;
• Verification of evidence.

The depth of the analysis depends on the objective and the risk associated with the process.

6. Evidence Management

An audit conclusion must be supported by evidence.

The following may be considered evidence:

• Documents;
• Records;
• Reports;
• Logs;
• Contracts;
• Policies;
• Interviews;
• Supporting documents;
• System screenshots;
• Other relevant records.

The important thing is to ensure that there is sufficient evidence to support the findings and conclusions.

7. Identification of Findings

During the audit, various types of situations may be identified.

This classification helps prioritize subsequent actions.

8. Assessment of the cause

Identifying the problem is only part of the audit.

It is important to understand the cause.

A failure may occur due to:

• Lack of procedure;
• Inappropriate procedure;
• Lack of training;
• Supervisory failure;
• No control;
• Ineffective control;
• Technical problems;
• Lack of resources.

Identifying the cause increases the likelihood that the corrective action will resolve the problem once and for all.

9. Audit Report

After execution, the results must be consolidated.

A report may include:

• Objective;
• Scope;
• Methodology;
• Period;
• Criteria;
• Findings;
• Evidence;
• Risks;
• Recommendations;
• Completion.

The report should be clear and tailored to the decision-makers.

10. Action Plan

An audit does not end when the report is submitted.

If any deficiencies have been identified, the organization needs to define what will be done to correct them.

An action plan may include:

• Description of the action;
• Owner;
• Due date;
• Priority;
• Status;
• Required resources;
• Proof of completion.

The flow becomes:

Finding → Cause → Risk → Corrective Action → Person Responsible → Deadline → Evidence → Validation

This connection is essential for the audit to produce concrete results.

11. Monitoring of Actions

One of the main shortcomings of audit processes is that they do not follow up on what happens after the report is issued.

An action can be:

• Not started;
• In progress;
• Late;
• Completed;
• Pending validation.

The organization needs to monitor these statuses and identify critical tasks that are behind schedule.

A recommendation without follow-through may remain just a recommendation.

12. Validation of the corrective action

Completing a task does not necessarily mean that the problem has been resolved.

Imagine that an audit identifies a deficiency in a control.

The department in charge can report that it has created a new procedure.

However, the audit may need to verify whether:

• The procedure was implemented;
• The employees were trained;
• The control is working;
• There is evidence;
• The risk was effectively reduced.

This validation improves the quality of the audit process.

How should audit findings be prioritized?

Not all findings have the same impact.

A criticality matrix can help an organization set priorities.

The criteria should be defined based on the organization's actual circumstances and risk appetite.

How Can Internal Audit Be Linked to Risk Management?

An audit can provide important information for risk management.

Imagine that an audit identifies a flaw in a critical process.

This information can be used to:

1. Record or update the risk;
2. Assess probability and impact;
3. Identify existing controls;
4. Evaluate the effectiveness of controls;
5. Create a corrective action;
6. Designate a person in charge;
7. Set a deadline;
8. Monitor the risk.

Thus, auditing no longer operates in isolation.

It then feeds into the organization's risk management cycle.

Audit and Internal Controls

One of the main functions of Internal Audit is to assess whether existing controls are adequate and effective.

A control may exist in theory but still not work in practice.

Therefore, the audit should take into account:

• Existence of control;
• Control design;
• Execution;
• Frequency;
• Responsibility;
• Evidence;
• Effectiveness.

This analysis helps distinguish between “We have it under control” from “We have a system that really works”.

What metrics should be tracked in Internal Audit?

Metrics allow the Internal Audit department to track its own progress and demonstrate results to leadership.

Risk-Based Auditing: Why Is It Important?

A risk-based approach allows the audit to focus its resources on the processes with the greatest potential impact.

This may include:

• Strategic risks;
• Financial risks;
• Operational risks;
• Regulatory risks;
• Reputational risks;
• Security risks;
• Third-party risks.

The result is an audit that is more closely aligned with business priorities.

What are the most common mistakes in internal auditing?

Auditing Without Considering Risks

This can result in resources being allocated to less relevant processes while critical risks remain unassessed.

Focusing only on finding errors

The audit should also identify causes and opportunities for improvement.

Failure to document evidence

Without adequate evidence, the findings are harder to support.

Submit the report and close the case

Without following up on corrective actions, the company has no way of knowing whether the problems have actually been resolved.

Do not validate the actions

An action marked as completed may not have actually reduced the risk.

Keep everything in spreadsheets

As the number of audits increases, spreadsheets can make it difficult to track deadlines, evidence, responsible parties, and metrics.

How Does Technology Help with Internal Auditing?

A GRC platform can centralize the various stages of the audit in a single environment.

Instead of keeping information scattered across documents, spreadsheets, and emails, the organization can set up an integrated workflow:

Planning → Audit → Evidence → Findings → Risks → Action Plan → Monitoring

This improves traceability and makes it easier to manage open issues.

How Does Triskle Help with Internal Auditing?

A Triskle GRC It centralizes processes related to governance, risk, compliance, controls, and evidence on a single platform.

In audit management, this structure can support:

• Planning;
• Control management;
• Recording of nonconformities;
• Evidence management;
• Action plans;
• Risk management;
• Metrics;
• Monitoring;
• Executive dashboard.

As a result, the organization is able to link the audit findings to the actions that need to be taken.

An audit is no longer just a report; it has become part of the organization's continuous improvement cycle.

Frequently Asked Questions About Internal Auditing

What Is Internal Auditing?

It is a structured assessment activity designed to analyze an organization’s processes, risks, controls, and practices, thereby contributing to improved governance and management.

What is the purpose of the Internal Audit?

Identify risks, evaluate controls, identify deficiencies, verify compliance, and make recommendations to improve the organization's processes.

What is the difference between an internal audit and an external audit?

Internal Audit focuses on evaluating and improving the organization’s processes, risks, and controls. External Audit has specific objectives defined by the contracted work or applicable requirements.

How to Structure an Internal Audit?

The process typically involves planning, risk assessment, scope definition, execution, evidence collection, identification of findings, reporting, an action plan, and monitoring.

Should internal auditing be risk-based?

A risk-based approach allows organizations to prioritize processes with the greatest potential impact and use audit resources more strategically.

What should you do after an audit?

The findings should be analyzed and, when necessary, translated into action plans that include responsible parties, deadlines, priorities, and evidence of completion.

How can you tell if a corrective action was effective?

It is necessary to verify whether the action was implemented and whether it effectively addressed the root cause of the problem or reduced the identified risk.

How Does Technology Help with Internal Auditing?

A GRC platform can centralize audits, controls, evidence, nonconformities, risks, action plans, and metrics, thereby increasing traceability and visibility for management.

Internal auditing should not be viewed merely as an oversight activity.

It is a tool for understanding risks, evaluating controls, and continuously improving the organization.

A truly effective audit does not end when the report is submitted.

It ends when the organization is able to demonstrate that the identified problems have been addressed and that the risks have been reduced.

Therefore, the complete cycle must be:

Audit → Evidence → Finding → Risk → Action Plan → Correction → Validation → Monitoring

The more structured this process is, the greater the organization's ability to turn auditing into a strategic governance tool.

If your company still manages audits, evidence, controls, and action plans using spreadsheets and separate documents, there is an opportunity to improve the maturity of the process.

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