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Why Museums Need Internal Audit

Category: Alliance Blog
A hand holding a magnifying glass over stacks of gold coins.

How do you feel when you hear the words “internal audit”? For many people, the answer is a sense of anxiety and perhaps even a muttered “uh oh.” As a group of museum internal auditors, we’re used to confronting this reaction from our colleagues. But we find that once they really understand what we do, and move beyond what our titles may suggest, they learn to welcome our arrival. In fact, some internal auditors are pursuing a change in title for this reason.

In writing this article, we hope to help you see that there is more to the role and the value we bring to our organizations than meets the eye. By the end, we hope you will see all the ways our work can make your life as a museum professional significantly easier, not harder. For those we manage to convince, we include some advice on how you can find and engage a qualified internal auditor.

What Internal Auditors Do

The mission of internal audit is “to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight” per the Institute of Internal Auditors, an internationally recognized guidance-setting professional organization. Every company listed on the New York Stock Exchange must maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal controls. Doesn’t having a function that enhances and protects organizational value sound like something every museum—no matter what size, amount of revenue, or number of employees—could also benefit from having?

An internal auditor can be likened to a car mechanic who checks your car to make sure it is working properly, allowing you to drive it safely. Imagine you are about to embark on a cross-country road trip. You likely want to make sure your car is running smoothly before you begin your long journey. You might take it to a trusted mechanic who inspects different components of the car, looking for signs of wear and tear, potential issues, or parts that need replacement. The mechanic also checks if your car meets safety standards and gives you guidance on proper maintenance procedures for your trip to ensure a safe journey lies ahead.

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Instead of examining cars, internal auditors examine various aspects of an organization’s operations. They start by gaining an understanding of the mission and priorities of the organization and then inspect the components that drive success to ensure they are finely tuned. They may review workflows, financial records, internal controls, and compliance with laws, regulations, and the organization’s policies. They observe and report back to management any financial or operational risks to prioritize for improvement.

Internal auditors are trusted advisors within organizations who examine processes, systems, and controls to help ensure organizations can get from where they are to where they want to be as smoothly as possible.

The Benefits of Internal Audit

Internal auditors are problem-solvers at heart. In addition to conducting audits and, when needed, investigations of error or potential fraud, we assist our organizations in identifying potential risks and help to ensure there are effective controls in place to reduce those risks. On top of that, we also assess the efficiency and effectiveness of operations and make recommendations for improvement. This is where all museum professionals should perk up. If you believe your department or functional area needs more resources in the way of funding, people, tools, or automation to meet strategic goals or mitigate risk, we may be able to lend credibility to those concerns through our independent and objective assessments, helping you make your case to leadership.

If resources prove unavailable, a frequent reality in today’s post-pandemic environment of funding and staffing shortages, we can also assist with process improvement recommendations that allow you to do more with less. We can advise on enhancements to increase efficiencies, automate processes, eliminate duplication of effort, identify and reduce revenue leakage, and enhance current reporting and analytics by partnering with stakeholders to address emerging risks and pain points within current processes.

Internal audit can also serve as a catalyst for the following organization enhancements:

  • Increasing efficiencies and automating workflows
  • Maximizing the functionality within existing systems and software applications
  • Increasing compliance with regulatory and internal requirements
  • Increasing revenues and reducing expense
  • Identifying competitive advantage
  • Protecting the organization’s assets
  • Re-engineering antiquated processes

Steps to Engaging an Internal Auditor

Now that you have a better understanding of the internal auditor’s function, let’s explore some of the basic steps you can follow to engage one in the right way for your organization.

First, you will need to determine in what capacity you’ll engage your internal auditor. While having a qualified internal auditor on staff is a great investment, your institution may not have the budget to make this possible. If so, you can engage one as an outside consultant for a specific project to start.

Next you will need to evaluate and prioritize your needs. If ticket sales are the most materially significant area of revenue for your organization, for example, performing an audit of the box office and ticketing system will help identify control gaps that leave you vulnerable to financial loss and fraud. If exhibitions are your biggest expense, performing an audit could provide valuable insight into process inefficiencies, control deficiencies, and cost overruns; while auditing payroll could help to identify overpayments or overtime irregularities. Instead of trying to audit every area of your operations at once, start with a single area of focus.

A final and important step is to determine the reporting structure. To maintain independence and objectivity, it’s best if the internal auditor reports directly to the audit committee of your board of directors and reports administratively to either the president/executive director or general counsel.

Finding a Qualified Internal Auditor

Once you know how you want to engage an internal auditor, you can start the process by having a conversation with your external audit firm. Finding a qualified internal auditor with relevant experience transferrable to the museum sector may not be as difficult as you might think. Your new internal audit role may be filled by a former external auditor or by someone who is currently working as an internal auditor in higher education, a government agency, or retail, among other possibilities. Reaching out to the local chapter of the Institute of Internal Auditors is another great option to start your search.

Look for internal auditors who exhibit active listening skills as they seek to get an understanding of your organization and the expectations of the role. Internal audit, at its foundation, involves the ability to be curious, observe and thoroughly understand internal processes, identify and mitigate risk, and improve internal controls, so these skills are among the most important to look for.

Relevant professional certifications, including Certified Internal Auditor (CIA) or Certified Public Account (CPA), distinguish qualified candidates with an allegiance to a professional code of ethics, as well as requirements for continuing education, that should help to ensure a high level of quality in their work.

Ask Us Your Questions!

To help bolster our field, we have established a new online community on AAM’s Museum Junction platform for museum finance, accounting, and audit professionals. Even if you are not in a financial role, we hope you will consider joining to leverage the knowledge and experience of those who are. As you begin the journey of minimizing risk and strengthening operations through internal audit, we invite you to bring your questions to the forum.

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1 Comment

  1. Hello, my names are Getrude Mwanza, Internal Auditor at National Museums Board Zambia.I asking if you have any standard programmes for auditiing of Museums.


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