Why are internal audits important? – Term Paper

Strengths and Weaknesses: Doing an Internal Audit

“Success Academy May Have Overcharged City for Special Education Services; Audit Says” embodies the outcome of a review of Success Academy. It exposes some of the laxities within the academy’s administration, finance, and procurement. For instance, the management could not account expediently for costs incurred on services not documented. Despite being a top performing school in the state examinations, some administrative flaws identified by the audit include a harsh disciplinary condition that leads to dropouts, especially of indisciplined students (The New York Times, Dec 206. p.A23). According to the audit report, the school management failed in its role to protect the taxpayer’s money from misappropriation. The Academy denied every bit of the review. Sample studies conducted among students in the Academy network at Harlem, Manhattan revealed that any operator’s records did not support education services billed for 21 students. Nonetheless, the audit could not authoritatively determine whether the disputed services were not rendered or not just completely documented.

Chapter 4 of the readings exemplify that organization must generate value from its resources and does so through their capabilities. Therefore, the audit report of Success Academy was right to recommend that the institution reimburses the Education Department all funds that it could not account for explicitly (The New York Times, Dec 206. p.A23). Based on the facts presented in this report, it is evident that auditing encourages accountability, documentation, and proactivity in the management of corporate funds (Schartmann & European Confederation of Institutes of Internal Auditing, 2007). By extension, it improves the capacity of the organization to deal with both projected and unusual occurrences that may affect internal operations. In essence, audits seek to establish a balance between income and expenditure to hold institutions accountable for all their transactions (The New York Times, Dec 206. p.A23). On the disadvantage side, audits that do not base on correct parameters may give false impressions about an institution’s status thus lowering its reputation or competitive advantage.

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Conducting internal audits of organizations and businesses is a critical approach towards ensuring value for resources at its disposal. At least the establishment of any institution must be based on the availability of a set of assets, which can be financial, physical, human, tangible, intangible, or structural-cultural. Corporate goals and objectives are made based on these resources and other projections. Therefore, internal audits are important in ensuring that the available activities are combined with right activities and proper role assignments to ensure achievement of set objectives (Schartmann ; European Confederation of Institutes of Internal Auditing, 2007).