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Internal auditing effectiveness: an expansion of

present methods

Mort Dittenhofer
Florida International University, Miami, Florida, USA

Keywords

Internal audit, Effectiveness

Abstract

One of the three areas to which


internal auditing is targeted is
effectiveness. Yet we do not often
determine whether the internal
auditing function is itself operating
effectively. We must identify the
basic objective of internal
auditing, define the goals to be
accomplished, establish measures
relative to achieving those goals,
and finally evaluate the overall
internal auditing process. We must
separate the usual measures of
output from the overall measures
of outcome to determine the cost
effectiveness and operational
improvement aspects of the
internal audit process. The former,
the time-honored internal audit
output measures must be
supplanted by internal audit
effectiveness achievements.

Managerial Auditing Journal


16/8 [2001] 443450
# MCB University Press
[ISSN 0268-6902]

Introduction
Internal auditing is developing as a
substantial element of management in both
the public and the private sectors. It has
become so important that the major public
accounting firms are entering the field
through what is being known as
``outsourcing'' and gosourcing. Because of its
importance and because of its continuous
escalation into the management process, it is
essential that action be taken to ensure that
the performance of internal auditing
conforms to high quality standards. It is also
important to determine that it is a productive
process that enhances its goals and objectives.
There is a substantial body of knowledge
being developed in the area of internal
auditing productivity, primarily through the
efforts of the international organization, The
Institute of Internal Auditors. These efforts
are providing considerable progress in
achieving higher quality performance in the
internal auditing activity. It is the objective
of this paper to describe performance
measures that relate to:
.
the identification of auditee goals and
objectives;
.
the identification of criteria that signify
the achievement of these goals and
objectives;
.
the quantification of these criteria; and
.
the observation, analysis and reporting of
these criteria; and
.
the measurement of the effectiveness of
the internal auditing operation in helping
to assure the achievement of the auditee's
goals and objectives.
This approach is at variance with the
traditional pattern of internal auditing
effectiveness which has been closely related
to the performance of elements of the current
internal auditing standards structure[1] or to
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quantitative characteristics of the audit


activity (see Appendix).
Audit productivity is also a part of the
paper because of the close relationship
between performance and productivity. It is
possible to conform to operational standards
and yet not to be productive. Productivity is
related to outcome as well as to output and
the measures of performance should relate to
effectiveness as well as to efficiency.
Traditionally the evaluation of internal
auditing performance has been based on the
standards of the Institute. The standards are
currently divided into five groups
conforming to the five present general
standards. They are:
1 Independence.
2 Professional proficiency.
3 Scope of work.
4 Performance of audit work.
5 Management of the internal auditing
department.
However, it is believed more appropriate to
also consider aspects that relate more closely
to the intended outcome of the auditing
process. Thus, it is important to develop
measurement processes of the auditor's
assistance to the achievement by the auditee
of its objectives and goals.

Background of the Institute of


Internal Auditors
Internal auditing, although practiced to a
degree by governments and the church for
about 5,000 years, came into prominence
about 60 years ago. Its emergence was the
result of the efforts of a group of progressive
auditors who believed that the time had come
for it to take its place as a recognized
management discipline, and also, as a result
the economic conditions in the early 1940s,
when because of war conditions, resources
were limited, causing organizations, both
business and government, to search for
operating efficiency and economy. Internal

[ 443 ]

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

auditing today is one of the most active and


progressive of the financial professional
associations. Its professional organization,
The Institute of Internal Auditors, has about
100,000 members in over 150 countries.
The Institute is dedicated to furthering the
state of the arts in both in philosophy and
practice of internal auditing. It has,
throughout its short 60 year-plus life,
emphasized the practice of quality auditing
and its early edicts, its Statement of
Responsibilities and Body of Ethics, both
contained elements of that philosophy. In 1978
the Institute issued its Standards for the
Professional Practice of Internal Auditing.
These standards were predicated on
developing an approach as to what should be
performed by internal auditors rather than
being a collection of what might be considered
as current best practices. Thus, the standards
were forward looking and were intended to
drive the profession towards the ideal. The
Statements on Internal Auditing Standards that
are currently being issued to augment the
Standards and the early drafts of the ``new
look'' of the standards continue this philosophy
of internal audit's dedication to the concepts of
efficiency, economy, and effectiveness.
Although the Institute's internal quality
assurance program relates to conformance to
the elements of the standards, there is an
implied requirement that internal auditing
itself should be effective in determining the
degree to which the auditee has evaluated the
achievement of the objectives of its specific
programs and activities.

A basic objective of internal


auditing activity
A clue as to the objective of the internal
auditing activity can be obtained by
reviewing the Institute's standards issued in
1978. General Standard 300 relates to scope
and the specific standards included in this
general standard are:
.
assuring integrity of financial and
operational information and reports;
.
the determination that the organization is
complying with laws, statutes, policies,
procedures, and financial instruments;
.
an examination to determine that the
organization is operating efficiently and
economically;
.
the determination that the organization is
accomplishing the goals and objectives for
which resources have been provided; and
.
the determination that organization
assets are safeguarded.
Thus, it can be presumed that the basic
objective of internal auditing can be directly

[ 444 ]

related to auditing in those scope areas and


that the auditing in any one of the scope
areas would have the objective of
determining that controls exist and are
effective in ensuring that the parts of the
auditee organization are functioning in this
area in such a manner as to appropriately
serve the auditee organization as a whole.
In a more detailed treatment, we might
assume that the objective of this aspect of
internal auditing activity is to determine that
auditee controls exist and are effective, and
that will, in the interest of achieving the
auditee's objectives and goals:
1 assure sound financial controls;
2 assure sound operational controls;
3 assure reliable financial statements;
4 assure reliable operational reports;
5 assure compliance with:
.
statutes and regulations,
.
policies and procedures,
.
contracts and other financial
instruments,
.
good business practices, and
.
ethical and cultural norms;
6 evaluate performance of:
.
operating management,
.
middle management, and
.
top management;
7 assure the safeguarding of corporate assets:
.
physical,
.
intellectual,
.
cultural.

What is productivity?
Productivity (not necessarily efficiency)
could be considered to be the degree of
accomplishment of the objectives and goals
for which an organization's resources have
been provided. Thus, in order to determine
whether an internal auditing organization is
productive we must first define its objectives.
Second, we must be able to identify the
factors that represent the achievement of
these objectives. Thirdly, we must develop a
measurement process that will establish the
degree of achievement of these factors.
Finally, we must be able to convert these
achievements to a statement of
accomplishment actually the degree of
productivity that has been accomplished.
Productivity could be measured as degrees
of efficiency and of effectiveness. The first,
efficiency is related to the output per unit of
input. It is a mechanical measure of how well
the organization has utilized its resources in
producing measurable output. Output is
usually measured in units produced or in
some similar fashion. The measurements are
usually of a discrete measurable quantity of a
definable product or service.

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

On the other hand, effectiveness is usually


the achievement of a desired condition, the
outcome a result. This condition is often not
well defined but may be measured in degrees.
A single example is medicine where measures
such as morbidity and mortality could be
used. However, they do not measure the
degree of wellness of a population. Definition
of the accomplishment is difficult. Education
is another area of difficult outcome
measurement. Graduations and test results
are frequently used as measures. However, we
are not able yet to measure well the degree of
knowledge achieved by the population.
Webster defines effectiveness as the ability
to produce a desired result as viewed on an
after-the-fact basis. Measures or factors
relating to the achievement of auditee
objectives, that is effectiveness, may not have
been set by management. If not, the internal
auditor may have to work with management
to develop such factors. These factors may
have to be criteria such as the absence of
problems or of incidents or non desirable
events or activities.

Why do we measure productivity?


There are two basic reasons why it is
important to measure productivity. One is
because it is an indication of performance and
it can describe whether or not an organization
is performing in a satisfactory manner. The
second reason is that the measuring can serve
as a motivator for an individual or an
organization. It is accepted psychological
theory that counting and measuring creates a
sense of competition with one's self or with an
organization's prior performance or with a
predetermined standard.
The first reason, determining satisfactory
performance, has a more important impact as
it becomes a measure of whether the
organization as a whole is functioning as it is
intended to perform.
Productivity as related to outcome or
effectiveness is more important than
productivity as related to efficiency because
an organization can be efficiently performing
in a noneffective manner. Thus, the
organization may be efficiently active in
ineffective pursuits. Consequently,
productivity as related to auditee
effectiveness becomes a prime measure even
though it is very difficult to achieve.

The philosophy of determining


internal auditing effectiveness
Effectiveness is the achievement of goals
and objectives using the factor measures

provided for determining such achievement.


However, it has been traditional in internal
auditing that the determination of internal
auditing effectiveness can be accomplished
by evaluating the quality of internal
auditing procedures. On the contrary,
effective audit procedures should result in
determination by the internal auditors of
the character and quality of the
effectiveness of the auditee's control
operations. It is thus presumed that if these
auditing procedures are properly carried
out and the evaluative results are positive,
then the auditors have determined that the
auditee's goals and objectives are being
carried out and that the auditee is, in the
specific area, controlling the process and,
thus, is operating effectively. Thus, it is
presumed that the internal auditing
operation is in fact determining the
auditee's effectiveness.
However, there is no easy test of whether
the auditee's operations are effectively
achieving the objectives and goals
established by its management. Therefore in
order to ascertain the effectiveness of the
internal auditor one must look at whether
the auditor has found the auditee's actions to
result in the achievement of its goals and
objectives through what might be called a
``results'' examination. For this
determination the internal auditor must
have:
.
identified the auditee's goals and objectives;
.
established the criteria that could signify
their achievement or their
nonachievement; and
.
examined and measured those criteria to
determine whether the auditee's actions
have resulted in the achievement of its
goals and objectives, and to what degree.
In other words, the usual audit mechanics of
determining the presence of the procedures
used by the auditee, including the controls
set up by auditee management is not enough.
The internal auditors must go further so as to
ascertain that these auditee actions and
controls have actually resulted in the
achievement of the goals and objectives.
For instance, in an examination of controls
established to assure efficient manufacturing
operations, the criteria would be production
reports that measure production against
output standards. The measure that would
signify that the auditee's production
activities and controls are effective would be
production reports that show that operations
result in a favorable outcome compared to
the production objectives. Absence of reports
or unfavorable output indicating the nonachievement of production objectives would

[ 445 ]

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

indicate that the auditee's procedures and


controls were not effective in ensuring
designated production levels.
Another example would be the
safeguarding of assets. For instance, in
inventory operations, the criteria for
effectiveness would be the agreement of
inventory counts with perpetual inventory
records. Those operational inventory reports
and their use must be examined by the
internal auditors so as to determine the
effectiveness of the auditee's inventory
controls and associated activities. Thus, the
determination that the controls are not
enough, requires the internal auditor to
determinine why the effectiveness of the
auditee's reports and controls are deficient.
What we are really saying is that the
internal auditor, in addition to evaluating
the control procedures being used by the
auditee in all areas of auditing, i.e. for
integrity of information, compliance,
protection of assets, operating efficiently,
and operating effectively, must go one step
further and find out, through auditing
procedures, whether those auditee's control
operations are effective, that they are
producing the outcome results anticipated.
Some criteria is difficult to measure, for
example, compliance with laws and
regulation, policy and procedure, legal
instruments, etc. Noncompliance can be
reduced by controls; however, the controls
must be augmented by the auditee's periodic
review of the operations to determine
compliance. It would be unusual for
instances of noncompliance to show up in an
operating report. Frequently, noncompliance
is disclosed by auditing in specific areas of
interest. Thus, it would be assumed that the
internal auditors, in addition to determining
whether the auditee is taking steps to control
compliance, must, through review and
testing of the activities subject to compliance,
determine that those controls are effective
and that there is indeed compliance.

Measuring the achievement of


auditee objectives
Managers establish goals and objectives that
are to be achieved in the process of
conducting business or government. It is also
to be presumed that they have in mind certain
criteria that are to be achieved as a measure
of reaching those objectives. In many cases
the criteria are measurable such as:
.
gaining a certain market share percentage;
.
increasing sales by a specific percentage;
.
reduction of a class of costs by a certain
amount;

[ 446 ]

in government, providing specified care


for a specified number of beneficiaries; or
raising educational test scores by a
certain percentage.

However, there are other types of objectives


that may not be as easily measurable. Several
examples might be:
.
Producing financial reports that are
reasonably accurate in portraying the
financial results and condition of the
organization.
.
Producing operational reports that are
reliable and that can be used for
operational management decision
making.
.
Ensuring that assets of all types are
safeguarded.
Objectives of the latter-type are difficult to
measure on a quantitative basis. The
determination is either positive or negative,
and then the determination can only be made
on an after-the-fact basis. Also, if the
achievement is positive, there is usually no
measure of the achievement because there is
rarely any unique evidence that discloses
that the objective was achieved. Harmony
and a sense of wellbeing are present. It is
only when the objective is not achieved and
when situations arise that call attention to
deficiencies, that managers are aware that
the process needs fixing because it is not
working properly.
Management installs controls to prevent
the non achievement of its objectives or at
least it should initiate these controls.
However, the controls are not infallible,
sometimes they do not work. There are
reasons such as:
.
managerial override;
.
extreme complexity;
.
unskilled personnel;
.
fatigue;
.
sabotage; or
.
poor design.
Also, the controls may be working properly,
but those charged with the responsibility of
monitoring them and making adjustments do
not carry out their responsibilities and the
controls, though properly designed and
functioning, become ineffective because of
lack of application.
Internal auditors are a part of the overall
internal control system, thus they are
responsible for ferreting out situations where
the controls instituted by management are
ineffective or inefficient. Correspondingly,
the internal auditors must accomplish this
determination, that is identifying the
ineffectiveness of the controls, if their work,
i.e. internal auditing is itself effective.

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

Thus, if the objective of the internal


auditing activity was to assure that the
management-instituted controls were
functioning, then the noneffectiveness of the
internal auditing could usually be
determined on an after-the-fact basis when,
as a result of a situation resulting from
ineffective management controls, something
adverse to the organization's objectives and
wellbeing occurs.
If internal auditing does identify controls
that for one reason or another are not
functioning as they should in achieving
auditee effectiveness, it could be presumed
that the internal auditing function itself is
effective. Also, internal auditing making
recommendations that resolve these control
problems disclosed, could be another element
of internal auditing achieving its objective of
assuring that the auditee controls will, in the
future, be functioning properly.
When evaluating the effectiveness of the
internal auditing operation, a positive
response would be given when the internal
auditor:
1 audits the achievement of the auditees'
objectives and finds no problems, and no
problems surface following the audit; or
2 audits and finds problems; and
3 recommends solutions to the problems; and
4 the solutions resolve the problems.
However, it is possible that the internal
auditor's work was mixed: some problems
were found and resolved, and some problems
that were not identified actually surfaced
later. The measurement process should be
designed to record this mixed or incomplete
achievement of the internal auditing work.
However, to set perspective, there should be
an indication of the degree of importance of
the particular controls to the auditee
organization's wellbeing or to the efficient
and effective functioning of the organization.

The measurement of internal


auditing's effectiveness
Internal auditing is a complicated process. It
is made up of many elements such as long
term planning; organizing; staff
development; audit planning; the various
aspects of field work such as observing,
verifying, confirming, and analyzing;
reporting and follow-up. It also involves
interpersonal relations, interviewing and
conferring. These aspects of the internal
auditing process are important and should be
observed and evaluated. However, this
evaluation is not per se the sole evaluation of
the achievement of audit objectives, although

each of the evaluated elements definitely


contributes to this achievement.
The achievement of the internal auditing
process is when internal auditing performs
in such a way so as to accomplish the task
described by the internal auditing objective.
It may be a simple evaluation such as, ``has
the internal auditing process determined that
the auditee organization is effectively
complying with policies, procedures, laws
regulations, etc.'' It is not the evaluation as to
how the determination was made, but that it
was made and was effective. For instance,
questions should be posed as to whether a
determination was made that there was
proper compliance to laws, to policies, to
procedures, etc. and that the outcome was
appropriate. The response can be considered
to identify the evaluation as to how well the
collective auditing processes combined to
make this determination.
The response may not be a ``yes/no''
evaluation because the ``degree'' of
achievement may be more realistic. Where
controls would normally be a part of the
auditee compliance process, the auditor
would be expected to review these controls
for their operation and effectiveness.
Consequently, the overall evaluation of the
compliance activity in this case, would also
include the auditor's evaluation of how well
the auditee control activity was assisting to
ensure compliance and that compliance was
appropriate and effective.

Examples of deficiency criteria


In the previous discussion of the internal
auditor's determination as to whether the
auditee's activities and controls were
functioning effectively, it was stated that the
auditor should extend the audit to determine
the actual effectiveness of the controls. In so
doing, the auditor would be searching for
evidence that the controls were not effective
and that the auditee's programs were not
achieving their intended objectives. Below
are examples of deficiency examples that
would serve as evidence of such control
failures.

The objective to produce reliability and


accurate information

1 Financial
.
External auditors find accounting
deficiencies.
.
Subsequent financial period operations
disclose inaccuracies.
.
Evidences surface of malfeasance,
misfeasance and/or nonfeasance in
financial reporting.

[ 447 ]

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

2 Operating
.
Analytical auditing during a
subsequent period discloses operating
activities that were inappropriate and
which were based on faulty operating
information or reports.
.
Asset shortages such as inventories
resulted from faulty operating reports.
.
Defective production causing returns
from customers resulted from
inaccurate reports that did not focus
management's attention to improper
production activities.

The objective to gain compliancy with


policies, procedures, laws, regulations and
good business practices

1 Events occurred that evidence


noncompliance with organization policies
in such areas as:
.
credit approvals;
.
human relations;
.
affirmative action;
.
advertising; and
.
environmental activities.
2 Events occurred that evidence
noncompliance with organization
procedures such as:
.
production processes;
.
sales activities;
.
environmental activities; and
.
purchasing methods.
3 Evidence surfaced on noncompliance with
laws and regulations in such areas as:
.
environmental activities;
.
tax, federal and local;
.
safety provisions;
.
pension operations; and
.
credit and collection practices.
4 Evidence disclosed that good business
practices were not followed in such areas
as:
.
purchasing;
.
receiving and inspection;
.
inventory handling; and
.
management of capital assets.

The objective to safeguard assets

1 There were unexplained losses resulting


from shortages in cash, accounts
receivable, inventories, and/or plant and
equipment. Analysis and investigation
disclosed that the losses were the result of
lack of or ineffective controls.
2 There were losses of assets resulting from
lack of or improper physical safeguards.

The objective to operate economically and


efficiently
1 Events have occurred that indicated that
the organization was not operating
efficiently in its:

[ 448 ]

production functions;
administrative functions; or
.
support functions.
2 Events have occurred that indicated that
the organization was functioning in a noneconomic manner in the use of resources
such as:
.
facilities and equipment;
.
supplies, both administrative and
production;
.
utilization of worker skills.
.
.

The objective to function effectively

1 Events have occurred that indicated that


the organization was not achieving the
goals and objectives set by management or
outside directive authority. Examples of
causes were:
.
goals and objectives were not clearly
set;
.
criteria indicating achievement were
not identified; or
.
measurement methods were faulty.
Much of the above information would be
disclosed in other internal audits of the
organization. Performance auditing should
normally include reviews of operations
including controls that would assure proper
consideration of many of the above items. For
example, an audit of the purchasing function
would determine compliance with
purchasing policies, procedures, laws,
regulations, and good business practices.
Also, an organization-wide review of the
effectiveness of controls of a particular
element's operation could not normally be a
specific audit assignment but could be
accomplished through a compilation of audit
reports on this aspect in various functional
audits such as audits of accounts receivable,
inventories, and capital assets. The review of
controls and their effectiveness should be a
common element of all of these functional
audits, as would be the review of related
financial and operating information and
reports.
Thus, the question as to the effectiveness of
the internal auditing function lies in the
evaluation of its work on these individual
functional audits and possibly deficiencies
might be disclosed in subsequent audits of
the functions. For instance, a follow-on audit
of environmental activities discloses that
deficiencies reported in the earlier audit
have not been resolved. A question then
arises as to whether the internal auditors
conducting the original audit performed
effectively or whether the continued
nonconformance resulted from management
inaction or mitigating circumstances.

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

Measurement and evaluation of


internal auditing failures
In order to arrive at a quantitative score of
the evaluations of internal audit failure and
to provide the detail supporting the
evaluations, a model should be developed.
The model should have:
1 The element of the auditee operation that
was being reviewed.
2 The criteria that evidences the failure of
internal auditing to perform.
3 A short description of the internal
auditing deficiency causing the problem.
4 An evaluation of the degree of failure of
the internal auditing to detect or pursue
the problem.
5 The importance of the incident to the
organization.

Criteria importance
2 Important but not decisive.
.
3 Little importance statute only
recommends does not require.
.

Inventory audit

Operation area
.
Safeguarding of assets.
Audit deficiency
.
Auditor did verify and report returns to
stock resulting from large customer
returns but did not determine that auditee
took corrective action.
Criteria
.
Recording of returns to inventory.
Audit evaluation
.
1 Complete failure to resolve the
unexplained losses of inventory problem.

A combination of items 4 and 5 would be an


indicator of the lack of effectiveness of the
internal auditing function. The model which
would be preprinted would be:
Operation area
Criteria
Audit
Criteria
audit deficiency evaluation importance
1 2 3
1 2 3

Criteria importance
.
3 Little importance inventory is not a
major asset.

The measuring process would use the


following grading characteristics:
Audit evaluation
1 Complete failure to detect, report or
pursue the problem.
2 Partial failure to detect, report or
pursue the problem.
3 Minimum failure to detect, report or
pursue the problem.
Importance of the criteria
1 Great importance to the organization.
2 Important but not decisive.
3 Little importance to the organization.

Audit defiency
.
Auditor did not completely review large
purchases to ensure that the bid process
was proper.

Following are three examples of the


evaluation process.

Environmental audit

Operation area(s)
.
Reliability of financial information.
.
Compliance with laws and statutes.
Audit deficiency
.
During an environmental audit, the
internal auditor reviewed some auditee
accrual controls and methods but did not
review the accrued controls for all
remediation costs.
Criteria
.
GAAP requires disclosure of all liabilities.
.
Regulations recommends liability funding
for remediation.
Audit evaluation
.
2 Partial failure to detect the problem.

Audit of purchasing activity

Operation area
.
Compliance with good business practices.

Criteria
.
Purchasing should follow generally
accepted bid practices.
Audit evaluation
.
2 Partial failure to detect the problem
the audit was incomplete.
Criteria importance
.
1 Great importance most purchases are
handled through the bid process.

The benefit of the project

In their excellent monograph, Developing


Productivity in Quality Measurement Systems
for Internal Auditing Departments, Lampe
and Sutton (1994) recognize that the current
methods of determining internal auditing
effectiveness could be extended. They say
that the current methods ``fall short of
actually generating a measurement system''.
They continue:
In order to provide a comprehensive
measurement system, it is necessary to
further identify the total process for
providing professional internal auditing
services, consider the wants and needs of
major stockholders in each individual audit,
and generate a set of measures for each
critical process activity affecting the key
stakeholders.

[ 449 ]

Mort Dittenhofer
Internal auditing
effectiveness: an expansion of
present methods
Managerial Auditing Journal
16/8 [2001] 443450

[ 450 ]

The quality assurance surveys conducted by


the Institute of Internal Auditors identify in
detail the activities that the quality
assurance survey team should perform in
determining whether the internal auditors
adequately reviewed the various elements of
the Scope general standard. These activities,
are in the IIA Review Manual (IIA, 1990).
Observation will show that they are
procedural in nature, albeit they are very
clear and complete.
The Review Manual also provides for a
response by auditees relative to their
observation of the work of the internal
auditors. The questions in this auditee
questionnaire are also procedural in nature.
They relate in a more summary fashion to
the internal audit program type questions in
the basic peer review survey.
The Review Manual from which the
procedures are taken also states, ``conformity
with applicable standards is more than
simply complying with established policies
and procedures. It includes performance of
the audit functions at a high level of
efficiency and effectiveness. Quality
assurance is essential to achieving such
performance as well as to maintaining the
internal auditing department's credibility
with those it serves'' (IIA, 1990).
These surveys are important and
necessary for a complete review of the
evaluation of the procedural quality of the
internal auditor's work. However, they do
not go the final step that is they do not
measure the effectiveness of the internal
auditor's work, though some questions tend
to approach this determination. What is
needed is an evaluation as to whether the
auditee element that was audited was
actually improved, if improvement was
needed. In other words, did the internal
auditor's work result in the correction of
deficiencies, if deficiencies existed, or if they

did not exist, did the internal auditor's work


confirm this condition? This is the
determinant of the effectiveness of the
internal auditor's work. As is stated
elsewhere in this paper, the internal auditing
procedures could have been properly
performed, but the organization's operation
might still be defective. The difficult problem
is determining the measurement criteria to
prove this condition.

Note

1 The Institute has recently revised its


definition to align it closer to current
concepts. In keeping with the new definition,
the standards will also be revised and
reclassified. It is contemplated, however, that
the present substance will be retained and
expanded to a degree.

References

IIA (1990), Quality Assurance Review Manual for


Internal Auditing, 2nd ed., The Institute of
Internal Auditors, Altamonte Springs, FL.
Lampe, J.C. and Sutton, S.G. (1994), Developing
Productivity in Quality Measurement Systems
for Internal Auditing Departments, The
Institute of Internal Auditors, Altamonte
Springs, FL, p. 3.

Appendix
Examples of internal auditing output:
.
Number of audits completed.
.
Adherence to audit budget and plan.
.
Amount of savings and collections:
actual,
potential.
.
External audit fee reductions.
.
Number of audit findings:
reported,
implemented.
.
Quality of working papers.
.
Quality of audit findings and
recommendations.