Internal Audit
Internal Audit: A Simple Guide with Examples
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Internal Audit
At Rajvanshi & Associates, we believe strong internal audits are the foundation of good governance and efficiency. Our goal is to help businesses strengthen controls, manage risks, and improve operations. Through detailed and objective audits, we ensure businesses stay compliant, minimize losses, and align their processes with their goals.
What Are Internal Controls?
| Internal Control Example | Why It’s Important |
| Requiring manager approval for expenses | Stops unauthorized spending |
| Separating duties (e.g., one person approves purchases, another makes payments) | Reduces fraud risk |
| Regularly reconciling bank statements | Detects errors or suspicious activity |
| Physical inventory checks for assets | Ensures company assets are not lost or misused |
Common Internal Control Mistakes
| Mistake | What Could Happen | Real-Life Example |
| No approval process for purchases | Unnecessary spending and budget overruns | A company bought office furniture worth ₹5 lakh without approval |
| One person controls everything | Increased fraud risk and undetected errors | An employee transferred ₹10 lakh to a personal account using fake vendor invoices |
| No physical inventory checks | Theft and loss of company assets | Goods worth ₹2 lakh went missing due to lack of stock checks |
| Not reviewing vendor payments | Overpayments and vendor fraud | A vendor was paid twice for the same invoice, leading to a ₹50,000 loss |
Why Internal Audit Is Important
| Benefit | What It Means | Real-Life Example |
| Better Risk Management | Identifies and reduces risks | An audit found missing maintenance contracts, preventing a ₹15 lakh repair cost |
| Improved Efficiency | Ensures resources are used properly | An audit reduced excessive overtime claims, saving ₹3 lakh annually |
| Compliance | Avoids legal and regulatory penalties | Timely tax filing prevented ₹1 lakh in fines |
| Stronger Controls | Prevents fraud and financial losses | Unauthorized cash withdrawals of ₹5 lakh were identified and stopped |
| Strategic Alignment | Supports business goals | Improved procurement processes reduced project delays |
Our Internal Audit Process
At Rajvanshi & Associates, we follow a structured and efficient approach to deliver real value:
| Step | What We Do | Example |
| 1. Plan the Audit | Define scope, goals, and risks | Audit the procurement process to check vendor payments |
| 2. Collect Data | Review documents, interview staff | Examine purchase orders, invoices, and payment records |
| 3. Test Controls | See if rules and processes are followed | Verify if payments were approved and matched with purchase orders |
| 4. Analyze Findings | Identify gaps and assess risk | Detect duplicate payments and missing approvals |
| 5. Report Results | Share findings and suggest solutions | Recommend stricter approval processes to avoid overpayments |
| 6. Follow Up | Ensure issues are fixed | Confirm improvements and prevent future errors |
Detailed Audit Report Example
Audit Title: Procurement Process Audit – Vendor Payments
Audit Period: October 2024 to January 2025
Department Audited: Finance and Procurement
- Executive Summary:
Our internal audit revealed serious weaknesses in vendor payment controls. Missing approvals and lack of verification led to overpayments and delays. Immediate action is needed to strengthen these processes. - Audit Objectives:
- Ensure payments have proper approval and documentation
- Check if payments match purchase orders and invoices
- Identify delayed, duplicate, or unauthorized payments
3. Findings:
Finding | Description | Risk Level | Impact |
1. Missing Payment Approvals | 25% of payments (₹12 lakh) lacked proper manager approval | High | Increased risk of fraud and errors |
2. Duplicate Payments | ₹2 lakh was paid twice for the same invoice | Medium | Financial loss |
3. Delayed Payments | 30% of payments were delayed by more than 45 days | Medium | Damaged vendor relationships |
4. Root Cause Analysis:
- Lack of oversight: Inadequate monitoring of payments
- Weak controls: Missing checks for duplicate invoices and approvals
- Process inefficiency: Manual processes causing payment delays
5. Recommendations:
| Recommendation | Action Plan | Responsible Person | Target Date |
| Implement mandatory payment approvals | Ensure payments above ₹50,000 require manager approval | Finance Manager | 15 March 2025 |
| Introduce invoice matching software | Automate matching of purchase orders, invoices, and payments | IT Department | 31 May 2025 |
| Conduct staff training on payment procedures | Train finance staff on approval and review processes | HR Department | 30 April 2025 |
6. Conclusion
At Rajvanshi & Associates, we believe strong internal controls drive business success. Our audit found serious gaps in the procurement process. By implementing these recommendations, the business can prevent losses, improve vendor relationships, and enhance efficiency. Regular follow-up will ensure these improvements last.
Final Thoughts
At Rajvanshi & Associates, we help businesses strengthen their internal controls and manage risks effectively. A well-executed internal audit improves efficiency, safeguards assets, and ensures long-term success. If your organization wants to strengthen its internal controls and drive continuous improvement, reach out to us — we’re here to help.
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