Internal Audit interview Insights with Q & A

An Internal Auditor is responsible for evaluating and improving the effectiveness of an organization's risk management, control, and governance processes. They perform audits to assess internal operations' efficiency, and compliance with laws and regulations, and safeguard against potential risks like fraud or inefficiencies.

Key Responsibilities of an Internal Auditor:

1. Risk Assessment: Identify key risk areas and assess their potential impact on the organization.
2. Internal Controls Evaluation: Review internal controls and ensure they effectively mitigate risks.
3. Operational Audits: Assess the efficiency of processes, including financial and operational areas.
4. Compliance Audits: Ensure the company complies with relevant laws, regulations, and internal policies.
5. Recommendations: Provide actionable recommendations for improving processes and internal controls.
6. Report Writing: Prepare detailed audit reports to present findings and suggestions to management.
7. Follow-up Audits: Review actions taken after the audit to ensure recommendations were implemented properly.

1. Tell me about yourself and your experience in internal auditing.

Answer: With over 2 years of experience in Accounts Payable and US Taxation, a strong foundation in finance and compliance has been built. While working on transaction payment methods and process improvements, a keen interest in internal auditing emerged, particularly in the area of internal checks. This experience provided valuable insights into identifying inefficiencies, ensuring proper control mechanisms, and improving overall operational accuracy. Internal auditing now presents an exciting opportunity to further contribute to organizational success by ensuring compliance, enhancing processes, and mitigating risks.

2. Why do you want to become an internal auditor?

Answer: Understanding business processes and identifying areas where risks or inefficiencies exist is highly rewarding. Internal auditing provides an opportunity to work with different departments to ensure the organization operates efficiently and complies with regulations. The dynamic nature of the role, along with the ability to make impactful recommendations, creates a continuous learning and problem-solving environment.

3. What interests you about auditing in this particular industry?

Answer: This industry faces unique challenges due to its regulatory environment, making it particularly interesting. Its complexity and the need for constant vigilance in compliance and risk management align well with a passion for improving processes and ensuring operational efficiency. The opportunity to contribute by addressing these challenges and supporting the organization in achieving its goals is appealing.

4. How do you perform a risk assessment for an audit?

Answer: Risk assessments begin by understanding the business objectives and identifying risks that could impact them. External and internal risks are evaluated, considering factors like financial health, operational efficiency, and regulatory compliance. A risk matrix is used to prioritize risks based on their likelihood and impact. Engaging with management and department heads helps identify vulnerable areas. The audit plan is then tailored to focus on high-risk areas.

5. Explain the process you use for testing internal controls.

Answer: The process starts by gaining an understanding of the control environment through reviewing documentation, conducting interviews, and performing walkthroughs. Samples are selected for testing, ensuring the control operates as intended. Techniques such as inquiry, observation, and re-performance are used. For automated controls, data analytics may be applied to verify system configurations. Findings are documented, and recommendations are made to strengthen or improve controls where necessary.

6. What is the difference between internal and external audits?

Answer: Internal audits are conducted by the internal audit department to assess risk management, internal controls, and governance processes. The focus is on improving efficiency and ensuring compliance with internal policies. External audits, on the other hand, are performed by independent third parties to ensure that the financial statements are accurate and compliant with accounting standards. External auditors focus primarily on financial reporting, whereas internal audits have a broader scope.

7. Can you describe a time when you identified a major weakness in internal controls? How did you address it?

Answer: During an accounts payable audit, a significant control weakness was found where invoices were paid without proper authorization, posing a risk of overpayment or fraud. The issue was documented, and management was advised to implement an automated approval workflow to ensure proper review and approval of payments. Periodic reconciliations were also recommended to prevent unauthorized payments. Subsequent audits showed improvement in the control environment.

8. What are the key risks that internal auditors should look for in [specific industry]?

Answer: Key risks in [specific industry] include regulatory non-compliance, cybersecurity threats, operational inefficiencies, and financial misstatements. Non-compliance with regulations can lead to legal and financial penalties. Cybersecurity risks, such as data breaches, are also prominent. Operational inefficiencies can result in lower profitability, and financial misstatements pose a risk to the organization’s financial health.

9. What are some common fraud schemes you've encountered, and how did you uncover them?

Answer: A common fraud scheme involved falsified expense claims, where employees submitted inflated or duplicate expenses. By reviewing supporting documents and performing data analytics on expense patterns, irregularities were identified, such as identical expenses submitted multiple times. Cross-referencing company policies and verifying expenses with vendors helped uncover the fraudulent activity. Stronger controls were recommended for the expense approval process.

10. What is SOX compliance, and how is it relevant to internal audit?

Answer: SOX, or the Sarbanes-Oxley Act, mandates public companies to maintain effective internal controls to prevent fraud and ensure accurate financial reporting. SOX compliance is directly relevant to internal auditors, who are responsible for testing and evaluating these internal controls. Deficiencies must be documented, and recommendations made to ensure the company meets SOX requirements.

11. How do you handle confidential information in an audit?

Answer: Confidential information is handled with the utmost care by following company policies on data privacy. This includes encrypting files and limiting access to authorized personnel only. Confidential audit findings are discussed solely within the audit team until the final report is completed. In some cases, collaboration with legal and compliance teams ensures proper protection of the information.

12. Describe a time when you had to deliver tough audit findings to a senior manager. How did you handle it?

Answer: In one audit, significant control weaknesses were identified in a department’s financial reporting process, which had to be communicated to the CFO. The focus was on presenting facts objectively, highlighting the risks involved, and providing constructive solutions. The goal was to ensure that management understood the importance of the findings and felt supported in implementing corrective actions. As a result, the feedback was received positively, and improvements were made.

13. How would you approach auditing a department that is resistant to the process?

Answer: Building rapport with the department and emphasizing that the audit process is aimed at improving operations rather than punitive action is key. Start by understanding their concerns and clearly explaining the audit’s objectives. Maintaining open communication throughout the process and involving the department in each step helps reduce resistance. If issues persist, escalating to higher management may be necessary.

14. You found discrepancies in financial statements during an audit. What would be your next steps?

Answer: After discovering discrepancies, the next step is to investigate by reviewing supporting documentation and interviewing relevant staff. The nature and cause of the discrepancy are determined—whether due to errors, fraud, or control breakdowns. Corrective action is recommended, and the finance team is consulted to ensure discrepancies are resolved. Significant issues are reported to management, along with recommendations for stronger controls.

15. How do you assess the effectiveness of internal controls during an audit?

Answer: Assessing the effectiveness of internal controls involves understanding the control environment, risk factors, and the control objectives. Start by reviewing documentation, such as process flowcharts, policies, and control matrices, to identify key control points. Walkthroughs are conducted to verify if controls are implemented as designed. Tests are then performed to determine if they are operating effectively over a period. This can involve control testing techniques like inquiry, observation, re-performance, and sampling transactions to check for compliance with control procedures. If deficiencies are identified, root cause analysis is conducted, and recommendations for remediation are provided.

16. What is a risk-based audit approach, and how do you implement it?

Answer: A risk-based audit approach focuses on identifying and prioritizing the areas of greatest risk to the organization. This method ensures audit resources are allocated to the most critical areas. The process begins with understanding the organization’s risk appetite and objectives. Key risks are identified through risk assessments, discussions with management, and reviewing financial reports and prior audit findings. High-risk areas, such as fraud-prone processes or regulatory compliance, are prioritized. During the audit, controls are tested for these risks to assess their adequacy. Finally, audit findings are reported, with a focus on addressing high-risk areas first.

17. How would you handle a situation where you discovered fraudulent activity during an audit?

Answer: If fraud is discovered during an audit, it’s crucial to handle the situation with sensitivity and professionalism. The first step is to document the findings with evidence, such as transaction details, audit trails, and interviews. Confidentiality must be maintained throughout the process. Management or the internal fraud investigation team is notified, and the audit team should not confront the suspected individual directly to avoid tipping them off. The scope of the audit may need to be expanded to assess the extent of the fraud. Depending on the severity, external auditors or legal advisors may also be involved. Recommendations for strengthening controls to prevent future fraud are provided.

18. Can you describe a time when you identified a systemic issue in internal controls? How did you address it?

Answer: During an internal audit of the accounts receivable process, a systemic issue was identified where invoices were frequently processed late, leading to delayed collections and cash flow issues. A detailed review revealed that the underlying problem was the lack of coordination between the sales and finance teams, as well as outdated manual processes. This was addressed by recommending the implementation of an automated invoicing system, ensuring real-time data sharing between departments. Additionally, training sessions were suggested to enhance collaboration between sales and finance teams. Follow-up audits confirmed that the recommendations led to improved efficiency and timely collections.

19. How do you ensure compliance with regulatory standards during an audit?

Answer: Ensuring compliance with regulatory standards begins with a thorough understanding of the relevant regulations, such as SOX, GDPR, or tax laws, depending on the industry. The audit team stays updated on any changes in regulations by reviewing industry publications and attending compliance training. During an audit, procedures are designed to test whether the organization’s policies, processes, and controls are aligned with these regulations. Compliance is verified by reviewing transaction samples, internal reports, and external filings. If non-compliance is detected, it’s documented, and management is advised to implement corrective actions to mitigate the risk of legal penalties or reputational damage.

20. What steps would you take if management disagrees with your audit findings?

Answer: If management disagrees with audit findings, it’s important to maintain an open, constructive dialogue. Begin by clearly explaining the findings, the evidence that supports them, and the risks associated with ignoring them. Listen to management’s perspective and consider any additional information they provide. If there’s merit to their concerns, re-evaluate the findings. If the disagreement persists, escalate the issue to senior management or the audit committee, providing clear documentation and justifications for the audit findings. The goal is to reach a consensus on risk mitigation, but the integrity of the audit findings must be upheld.

21. How do you prioritize audit findings in your report?

Answer: Audit findings are prioritized based on the level of risk they pose to the organization. Critical findings that involve significant financial, operational, or compliance risks are given the highest priority, especially if they could lead to material financial losses, regulatory penalties, or reputational damage. Moderate risks that could cause inefficiencies or minor losses are addressed next, with recommendations for improvement. Finally, low-risk findings that represent best practices or minor control weaknesses are mentioned as opportunities for enhancement. Clear recommendations and timelines for remediation are provided based on the severity of the findings.

22. How do you assess the company’s overall risk management strategy during an internal audit?

Answer: To assess a company’s risk management strategy, begin by evaluating whether the organization has a formal risk management framework in place, such as COSO or ISO 31000. Review the risk management policies and procedures, ensuring they are updated and relevant to the business’s current environment. Meet with key stakeholders, such as the risk management team, senior management, and department heads, to understand how risks are identified, assessed, and mitigated. Evaluate the company’s risk tolerance and the processes in place for monitoring and reporting risks. Testing the effectiveness of key controls for mitigating high-priority risks helps determine if the risk management strategy is functioning as intended.

23. How do you stay current with evolving audit practices and regulatory changes?

Answer: Staying current with evolving audit practices and regulatory changes is essential to delivering effective audits. This involves regular participation in professional development opportunities such as attending industry conferences, webinars, and workshops. Additionally, subscribing to relevant publications, such as journals from the Institute of Internal Auditors (IIA) or updates from regulatory bodies like the PCAOB or SEC, ensures access to the latest standards and best practices. Networking with other professionals in the field, along with pursuing certifications like CIA (Certified Internal Auditor), also helps maintain a current understanding of industry trends.

24. How do you evaluate an organization’s fraud risk management program?

Answer: Evaluating an organization’s fraud risk management program starts by reviewing its fraud prevention policies and assessing the tone at the top regarding ethical behavior. The program’s effectiveness is evaluated by examining whether fraud risks have been identified, assessed, and incorporated into the broader risk management framework. Controls designed to detect and prevent fraud, such as whistleblower hotlines, segregation of duties, and transaction monitoring, are tested. Interviews with key staff help assess the organization's awareness and responsiveness to fraud risks. An effective program should include employee training, fraud risk assessments, and mechanisms for promptly addressing potential fraud incidents.