Internal Audit

Internal Audit

It is also known as internal strategic management audit. So it is a process in which the information about key internal factors is gathered and compiled. Specifically in order to ascertain the strengths and weaknesses of the organization. Moreover in the functional areas of marketing, management, finance. Along with production or operations and research or development etc. This internal audit is conducted for the assistance of the organization to positively utilize its strengths for success. Although while improving its identified weaknesses.

Nature of Internal Audit

Following points highlight the nature of internal strategic management audit.

• All the strategies & objectives of the organization are based on it.
• The internal strengths/weaknesses are assessed and clear statement of mission is also established
• It may be different for different kinds of organizations.
• The same organization may have different divisions that require different types of internal strategic management audit.
• It shapes the strengths of organization in such a way that cannot be easily imitated or matched by competitors.
• Effective strategies are built that convert the weakness of the organization into its strength.

In order to understand the nature and effects of decisions in other functional areas of the organization, internal strategic management audit is quite helpful. There are certain strengths and weaknesses in different functional areas of almost every organization. There is no single organization that can be completely equal in its all functional areas. For example, Proctor and Gamble Company is best in effective marketing whereas Maytag is best for perfect production and product designing. The internal weaknesses and strengths of the organization are aligned with the external threats and opportunities and finally a clear mission statement provides a ground on which objectives and strategies of the organization are established. The foundational element of the objectives and strategies is to take advantage of the strengths while improving the weaknesses of the organization.

The internal strategic management audit is essential for the success of the organization. The understanding & coordination among managers from different functional areas is enhanced through internal audit.

Key Internal Forces

Business policy text is not sufficient enough to explain the functional areas of finance, marketing, production, information system etc. Many subareas are included in these major functional areas like warranties, customer services, packaging, advertising and pricing under marketing etc. The functional business areas also differ for different kinds of organizations like universities, hospitals, government agencies etc. For example in a hospital the functional areas may include nursing, cardiology, physician support, hematology, and receivables. Another example of university organization contains placement services, athletic programs, fund raising, counseling, housing services, academic research & intramural programs. There are certain strengths and weaknesses in each division of a larger organization. For example, the ATT organization is weak in computers while strong in communications.

Distinctive competency is related to that is referred to that strength of the organization which is not easily imitated or matched. Taking advantage of distinctive competencies enables an organization to acquire competitive advantage.

Process of Performing an Internal Audit

The process of conducting internal Audit / internal strategic management audit is similar to External Audit. The strengths and weaknesses of the organizations are ascertained through involvement of a number of managers and employees of the organization. Certain information from the functional areas of marketing, production, finance, Research and Development etc. is collected and arranged. The members of the organizations that participate in the process of internal strategic management audit better understand the working of the jobs, departments and divisions as a component of the whole world. This understanding helps the managers and employees to perform their duties and tasks more effectively because they know that their works will influence other functional areas of the organization.

For example when the managers of finance and production together take into account the issues related to the strengths and weaknesses of their organization then this will help them to effectively face the issues and problems of all the functional areas of their organization. The organization that does not perform Strategic Management lacks the smooth interaction and understanding of its finance and production managers on certain problems and issues of the organization. The process of communication within the organization is made better through internal strategic management audit.

More From Business Study Notes:- Strategic Management 

The information about the operation of the organization is gathered and assimilated during the process of internal strategic management audit. All the weaknesses and strengths are identified and prioritized as critical success factors of the organization. There are different managers that are involved in the internal audit process and hence the identification & selection of 10 to 20 important strengths and weaknesses is quite a difficult task. For this purpose significant negotiation and analysis is required. The internal strategic management audit is quite essential for the formulation, implementation and evaluation of strategies.

A number of managers and employees provide different kinds of information and ideas about the factors that serve as strengths and weaknesses for the organization through effective coordination. Moreover all the participants should have understanding about the relationship between different functional areas of the organization. So that effective strategies and objectives can be established. The size, geographic dispersion, number of products or services offered and diversity of the organization makes the relationship among its functional areas more complex.