This article outlines the value of internal audit, how it can work with the board and administration, and steps internal auditors can take to demonstrate value.
Becoming a trusted advisor and partner with administration: The value of an internal auditor in school district operations
Action without insight often does not result in value. Internal auditors who operate in silos and without collaboration with management have found their role becoming obsolete. I have seen internal audit departments downsized or the function eliminated because internal auditors did not effectively promote their value or perform audits that address the needs of their district. Like any profession, internal auditors must continue to evolve and ensure that they provide value to their organizations. Communication, building lasting and effective relationships, and remaining adaptable ensure continued success.
School boards, superintendents and administrators have long relied on internal auditors for assurance that district resources are used appropriately. Previously, this typically included evaluating the management of district funds, ensuring compliance with funding requirements, or adding credibility and reliability to financial reports. These functions are still important. But over the past decade, the internal auditor’s role has evolved in response to more complex pressures and risks to district operations.
The goal of today’s internal auditor is to support the overall development of the district, identify areas to improve efficiency and effectiveness, and contribute more directly to the achievement of its larger objectives. As external threats and pressures grow, the internal auditor can serve as a trusted advisor to the Board and administrators, serving as its eyes and ears to upcoming and unforeseen risks.
As part of their changing role, internal auditors are expanding their abilities beyond traditional areas like accounting, compliance, fraud, and finance to developing their business acumen regarding operations as well as an expertise in technical areas like data science, analytics, IT, cybersecurity, and privacy.
The internal auditor can provide value not just by identifying findings, but also by offering detailed guidance on how to enhance processes and controls to improve efficiency, effectiveness, and compliance. The modern internal auditor also serves as a sounding board to management to discuss ideas and provide insight on how those ideas will address the risks to the district and maintain effective internal controls.
For districts that don’t have an internal audit function, establishing the function through internal hires or outside providers can often pay for itself in identifying improvements that save time and resources. By leveraging third parties to provide insight and expertise in a variety of operations and specialty niches, many districts have found that their investment in internal audit has more than paid for itself through overall improvements to district operations and insight on best practices leveraged by other similar districts.
Three lines model
In 2020, the Institute of Internal Auditors (IIA) updated its “Three Lines of Defense” model for internal auditors to provide guidance on how organizations should be structured to ensure an effective control structure to manage the organizations risks. The implementation of the IIA’s “Three Lines Model” can help school boards and administration ensure managing risks is a district-wide activity and establish a clear role of the internal audit function to remain independent and collaborative.
The IIA points out that: “The governing body, management, and internal audit have their distinct responsibilities, but all activities need to be aligned with the objectives of the organization. The basis for successful coherence is regular and effective coordination, collaboration, and communication.”
Proving the value of investing in internal audit
Most school district trustees and administrators recognize the value of having an internal auditor, or at least assigning internal audit functions that report to the Board and administratively to the Superintendent. But when times are tight and budget cuts must be made, internal audit may face staff reductions or other funding cuts. As often as not, this happens because the Board and administration may not recognize the value that internal audit brings to the organization, even in hard times when they can provide the most value in identifying areas to streamline to reduce waste and inefficiencies.
How can internal auditors communicate their value to the Board and administration? Here are a few steps.
Promote your role and the value of what you provide. This is an ongoing activity that can take many forms, from regular training of board members and administration, onboarding of new board members and key administrators, and training/outreach programs. Regular communication to staff and board members with newsletters, posts or notices in district publications can also help administration better understand how the internal audit function benefits overall district operations and what they can offer to help your organization reach its potential.
Include all levels of the organization in risk-based audit plans. This should go without saying, but a risk-based audit plan should address risks at every level of district operations. Some of the most important information is likely to come from management on the front lines of the operation. Be sure to solicit their input as part of the process of developing your annual audit plan. This will ensure not only acceptance of the audit but a more collaborative and effective audit.
Ensure open and honest communications. There should be no board meeting surprises among the administration or the Board. Information should be freely shared so people know what’s coming and what will be presented. Effective communication will ensure lasting and deep relationships that will result in internal audit being the first call when help is needed.
As school districts adapt to changes in operations resulting from the pandemic, internal auditors will have a unique opportunity to provide insight about potential risks of proposed changes in school district operations along with compliance of the use of the influx of Elementary and Secondary School Emergency Relief (ESSER) funds. By doing so, they will play a key role in helping the district prevent future issues and be a leader in their field.