Internal Audit -

The Institute of Internal Auditors, New York defines internal audit as an "independent, appraisal activity within an organisation for the review of accounting,managerial control which functions by measuring and evaluating the effectiveness of other controls."

In other words, the scope of internal auditor's work shall include a systematic review of the following :

1. Internal control system and procedures.

2. System regarding the custodianship and safeguarding of assets-monetary and non-monetary of enterprise.

3. Compliance,by the various segments with the policies, plans and procedures of the enterprise as well as with the relevent regulations and laws.

4. System of collecting data both monetary and non-monetary to ensue that the information given to managment and to external agencies is relevant and reliable.

5. Organisational structure of the enterprise and its congruence with its objectives.

6. Effecients and economics use of resources tangible as well as intangible

7. Various operations.

According to SAP 7 on "Relying thr work of an internal auditor" and 'Genaral Guidelines on Internal Auditing' published by Institute of Chartered Accountants of India, internal audit operations in one or more of the following areas :-

Review of accounting system and related internal controls

The establishment of an adequate accounting system and the related controls is the responsibility of managment, which demands proper attention on a continuous basis. The internal audit function is often assigned specific responsibility by managment for reviewing the accounting system and related internal controls, monitoring their operation and recommending improvements thereto.

Examination for managment of financial and operation information

The examination of managment of financial and operating information may include review of the means used to identify,measure, classify and report such information and specific inquiry into individual items including detailed testing of transactions, balances and procedures.

Genarally, the external auditor is interested in the results of such audit works only when it has an important bearing on the reliability ofthe financial records.

This would generally include examination and verification of physical existence and conditions of the tangible assets of the entity.

Thus, the term internal auditing now means the task of carrying out a systematic and periodic review of various operations of an enterprise. In this sense, the term internal audit and operations audit are almost synonymous.The terms 'managment audit' 'operational audit' and the modern concept of the term 'internal audit' often convey more or less the same meaning. There is no clear-cut demarcation of the audit activities and the areas, which may fall in the ambit of these three terms.In an audit assigment to review operations and performance, it is difficult to say as to which portion of the audit program relates to internal audit, which to operational audit and which to managment audit. In other words, there is a considerable overlapping in the scope and content of the auditors covered under these three terms.

The internal audit of a bank, whether at the Head Office or at a branch, is more important, more detailed and needs to be more extensive and intensive than the so-called statutory audit which is required to be conducted once a year. An Internal Auditor of banks,unlike the statutory auditor, is required to hold a thorough scrutiny of matters. He has to see whether there is an adequate system of effective internal control, and if there is one, whether it is strictly adhered to and, if adhered to, whether any lapses/deficiencies are noticed therein and so on.

The internal auditor has also to see whether there are chances of any fraud taking place or leakage of the revenue of the bank because of unwanted delays, miscalculations, wrong handling of documents or inadequate safety measures etc,. He has to do all this by checking all the operations and records of the bank whether physically or otherwise.

However, there cannot be a definite procedure or area of audit for an Internal Auditor. In fact, the internal auditor has to look at each and every point of operation.This book has tired its best to serve as a practical guide giving some useful guideline/suggestions regarding the manner in which the Internal Auditor can achieve his objectives.

Banking companies normally deal in cash or documents, which may readily be converted into cash, as such there are greater chances of fraud and misappropriation and every precaution should , therefore, be taken to safegaurd against all such possible frauds or mismanagment of frauds. Further,frauds in banks are committed not only by the employees but also by constituents or both together. Therefore the bank auditor's efforts should be focussed mainly towards detection of frauds, if any.

For this purpose, the internal auditor is required to devote more of his time and energy to the study of compliance with the internal control measures.The auditor cannot confine himself merely to the verification of vouchers,checking of postings, etc. Since bank accounting is always voluminous, the review of internal control normally gains more significance in bank audits. The internal control measures followed in banking companies may be divided into two parts.