On the Frontlines: Adding Value to Operational Audits Via Technical Expertise
Blogs Hussein Elkersh, MSc, CIA, PMP
When I tell people that I work in the field of internal audit, they always assume that my background is probably accounting or finance. The idea of having operational audits under the internal audit umbrella is not yet common in many organizations.
I have a master's degree in mechanical engineering with diversified experience in the oil and gas and construction industries. My internal audit career began when I worked with Orascom Construction Group as a quality assurance engineer. The internal audit department initiated a rotational program where internal candidates from different departments applied, and those who were selected spent two years in the internal audit department. It was a great win-win initiative: With time, internal audit built specialized knowledge about the operation of each department, which then helped to build effective audit programs in these areas. What's more, the selected candidates had an awesome exposure to the internal audit activities across different functions, subsidiaries, and construction projects.
An Engineer Becomes a CIA
I applied to that rotational program and got selected. During the course of the program, I had the opportunity to audit various functions, regional offices, subsidiaries, and construction projects in Egypt, the U.S., Saudi Arabia, Bahrain, United Arab Emirates, and Algeria. I really liked internal auditing, and I started the journey to become a Certified Internal Auditor. In less than two years, I earned the CIA designation, and I was offered a promotion and a permanent position with the internal audit department. I believe that one of the key success factors for the internal audit activity in any industry is having team members with a diversified background and experience that match the activities of that industry. Recently, I joined Elsewedy Electric Power Systems Projects as a head of quality assurance. The comprehensive knowledge that I gained on the CIA journey, along with the experience and exposure that I received in internal auditing, truly helped me a lot.
Enhancing Operational Audits: No One-size-fits-all
In addition to rotational programs that aim to transfer the knowledge and expertise from various departments in the organization to the internal audit function, having a guest auditor in certain operational audits can be also a good option. The guest auditor is usually a subject matter expert in the area to be audited. Audit team members working alongside the guest auditor can gain and build experience and knowledge in these operational areas, which can enable them later to do operational audits by themselves. However, one critical issue that needs to be carefully considered in the case of guest auditors (especially internal guest auditors) and also in rotational programs is potential objectivity impairments. Per IIA Standard 1130.A1, Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the internal auditor had responsibility within the previous year. Thus, this issue needs to be properly addressed to ensure the objectivity of the audits.
Sometimes operational audits are either outsourced under the supervision of internal audit or conducted by other departments in the organization. The outsourcing option should be a result of a thorough cost-benefit analysis that concludes that the benefits of outsourcing such audits outweigh the costs associated with conducting them internally. Such a cost-benefit analysis should also take into consideration the criticality of the functions to be audited (e.g., core functions and support functions). On the other hand, depending only on other departments in the organization — such as quality assurance — to conduct operational audits will result in missing the benefit of having a third-line role ensuring optimal controls.
Finally, there's no one-size-fits-all arrangement for operational audits. Various methods can be applied, and the optimum arrangement depends on many factors that differ from one organization to another.