Internal Audit

In an environment of growing business risk, internal audit has become a key support vehicle for change and the business transformation journey.

At MBG, we drive innovation and business growth acting as a valuable business partner in conducting risk assessment and internal audit. As a renowned Internal Auditor , we combine the skills of our talents with a multi-vertical collaborative approach and a 360-degree view of the processes, supporting our clients on all stages of their growth. We bring in industry specific experience and regulatory knowledge and expertise , and combine our efforts with Technology, Data Analytics, Tax, Legal and other service lines to bring value addition to our clients. Our solutions are valuable, aligned, and agile. Our internal audit services provide the highest level of insight and quality, helping you act faster and building confidence to act decisively and remain focused on your core business.

We provide tailor-made solutions to your unique business needs, whatever your business model.

Risk Assessment: Correctly Evaluating Likelihood and Impact of Risk  

Risk assessment lies at the foundation of risk management strategies and practices. A risk assessment identifies, analyzes, and evaluates the potential exposures to risks that have an adverse impact on the organization and identifies the acceptable level of tolerance for those events. It then lays down the steps necessary to remove or reduce their impact.

The risk assessment process typically proceeds along the following steps :

• Risk and threat identification: Identifying the potential events and situations that could adversely impact business, e.g.,  socio-economic instability, legal and regulatory changes, disruption from public health threats (such as Covid) or natural disasters,  new developments in the industry or product market, disruptive technological changes, etc.
• Threat target: identifying specific areas of the organization or business and the specific physical and non-physical assets and infrastructure including operations, systems, and employees, that the above threats impact most directly
• Risk evaluation: Evaluating and determining (ideally both in qualitative and quantitative terms) the quantum of risk involved for each type of threat on each vulnerable target and the overall risk across all of these at the organizational level. Ultimately, the latter should be based on a risk assessment matrix mapping out the likelihood of each threat against its costs.
• Controls development: Developing the appropriate controls that would accordingly mitigate or minimize these risks and threats    
• Documentation: Officially recording and documenting the risk assessment output in an easily accessible and actionable way, with all details comprehensively listed. 
• Reviews and updates: The risk assessment documents should be reviewed and updated on a regular ongoing basis to ensure they reflect the latest risk environment and also take stock of the effectiveness of implemented measures 

Sound risk assessment achieves several important tasks such as:   

• • Developing risk profiles with quantified risks across various threats
  • Defining budgets required for risk mitigation overall and by threat risk type
  • Determining and understanding the ROI of such remedial spends, e.g., on cybersecurity 
  • Identifying weaknesses and exposures in production infrastructure
  • Conducting physical inventory audit procedures and developing inventory audit report

Mitigation Control: Measures to Effectively Remove or Reduce Risk

The purpose of mitigation controls is to remove or reduce the likelihood and impact of risk. These controls are allotted for specific threats as identified during risk assessment. The internal audit must assess which risks are relevant for the specific area or process that is being audited and which control approaches and measures must be used to manage them.  

Risk mitigation controls broadly revolve around the following four types :

• Avoidance: Taking steps to prevent the event from occurring. It often involves trading off other plans, e.g., aggressive growth, to ensure zero (or near zero) risk. Hence, there must be clarity on what and how much the organization is willing to trade off to avoid the associated risks.
• Reduction: Here the approach is to minimize the likelihood and cost of associated risks of the project rather than avoid it altogether (given that there is an acceptable level of necessary risk it requires) 
• Transference: This involves transferring the impact of the risk event to a third party. The most common example is insurance, but it could also involve other third parties such as suppliers by means of appropriately drafted contract terms such as penalties for delays, etc. 
• Acceptance: Here the assessed level of risk is accepted in its entirety as the rewards are deemed to be higher than the impact of the at-risk should it occur. These are typically cases where the likelihood and/or impact of the risk is low – but sometimes, businesses may judge potential rewards to be offsetting them even if not. Extra care and vigilance are necessary for these strategies.  

The type/s of control strategies used should be thoroughly evaluated and vetted by a experienced internal auditor or equivalent competent authority with regard to the selected plan’s sufficiency in mitigating the risks. It should be properly documented with clearly stated objectives, risks, current versus proposed controls, etc.  

The Internal Audit Plan: Ensuring Correct Implementation  

Given the centrality of internal audits in risk management, planning is critical for audit effectiveness. The company’s risk assessment determines the key areas of focus for the internal audit, and these priorities are reflected in the internal audit plan. 

The internal audit plan ensures that the process is carried out smoothly, aligning the company’s risk assessment with effective mitigation measures, and reflecting its overall goals and objectives. The plan lays down the scope and methodology of the internal audit work as well as its resourcing needs, specific auditing tools and procedures such as inventory audit procedures, etc., and audit quality parameters. The internal audit plan considers all relevant factors covering the business, market, economic and regulatory landscape. It reviews current internal controls and risks, trends in operations, financials, laws, and regulations, as well as other emerging trends that can impact the risk environment and the company’s exposure to it.       

Data Analytics: Tool for More Effective and Efficient Internal Audits

The use of advanced data analytics in Internal Audit services such as ours helps dig deeper and explore different areas of your business, providing root cause analyses supporting decision-making and helping establish an efficient and controlled framework strengthening the foundation.

Data analytics delivers significant performance uplift and value-add increases the credibility of Internal Audits with stakeholders. It also improves Internal Audit quality by automating the process and provides management with optimal operational assurance. 

A key benefit of data analytics is the comprehensiveness of audit and the elimination of sample testing it enables. This leads to more accurate audits and greater assurance to organizational management.

Data analytics also helps improve audit efficiency by processing large volumes of data within a limited timeframe. An unprecedented level of efficiency level can be achieved by allowing analytics to focus on low-value and transactional activities while auditors focus on items that demand human intervention. Automation of repetitive time-consuming tasks helps Internal Auditors establish more controls and improve adherence to standards and guidelines.

Data analytics also helps detect hidden patterns and anomalies. It enables internal auditors to identify risks more effectively and improve internal controls. Conducting real-time risk assessment and continuous auditing helps in improving risk management.

For other Advisory Services go here:- Risk Advisory Services