Accounting Best Practices, Fifth Edition

15–16. Fill Internal Audit Positions from Operations on a Rotating Basis

The problem with auditing the operations of a large company is the extremely high level of procedural complexity that must be understood in order to locate control problems. When internal auditors are hired from outside the company, they face a steep learning curve with these systems, possibly requiring well over a year to become conversant with even a limited subset of a company’s systems. This not only represents an inadequate use of expensive staff, but also creates the risk that control breaches may go unobserved until new internal audit staff complete their understanding of corporate systems.

A possible solution is to fill internal audit positions from the operations divisions on a rotating basis. This approach ensures a high level of operational knowledge by auditors, so that a much higher level of audit effectiveness can be achieved at once. By rotating in new staff on a regular basis, the internal audit manager is assured of having auditors with the most current knowledge of company systems. Conversely, these employees will require training in internal audit procedures, though it typically requires less time to achieve a reasonable level of competency. There is also a risk that auditors rotated in from the ranks of the operations staff will be less inclined to bring up control problems involving the divisions from which they were hired. This risk can be reduced by creating a cooperative audit environment ...