Academy Internal Audit – don’t be complacent!
While the Academies Financial Handbook (AFH) is clear that an academy trust must agree a programme of work to provide assurance on financial controls and risks, it suggests several options on how to deliver this. The options range from the appointment of an internal audit service, to a peer review or the appointment of a non-employed trustee. However, one suggestion made by the AFH should make academy trusts think carefully before proceeding–appointing the trust external auditor to carry out the programme of work.
This is probably the easiest to arrange and set up out of all the options but is it advisable? Trustees need to carefully consider whether using external auditors for a programme of internal work will provide the necessary assurance over compliance and risk demanded by the AFH.
It is difficult to understand how, in the current climate of closer scrutiny of auditor independence, external auditors can justify promoting an internal audit service. Can their internal audit work be truly independent and impartial when part of an external audit is to review the work undertaken by internal audit? This means the auditors will review and audit their own work! The stock response to the question of how can this possibly be independent and impartial is “Chinese walls”–the concept that the internal audit team is a completely ring-fenced part of the audit firm. It is claimed that the internal audit department has nothing to do with the external audit department–they may be led by different partners, operate out of different offices or different floors and use IT systems which are locked down and controlled. This separation may appear at first to be sufficient, but how does reality measure up?
All field work carried out for internal and external audits tends to be carried out by junior members of the audit firm–those working towards an accountancy qualification or who are newly qualified. It is a requirement of their training that they gain experience in different areas, such as internal and external audit, and it is not uncommon for a junior to spend one rotation on internal audit and the next as part of the external audit team. But what are the chances that in both rotations they end up working for the same client? Trustees need to be aware of this and the potential appearance of lack of transparency it can imply.
So, if trustees truly want assurance on the financial controls and risks of their academy trust, what can they do? Appointing the external auditors as internal auditors remains an option but should be thoroughly thought through. For true independence and that crucial assurance, the best option will always be to purchase an internal audit service from an organisation separate from the external auditors.
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